Bernadette Soriano

On paper, it presents itself as a routine adjustment — a streamlining, a standardization, a long-overdue recalibration of a system once tailored to the elite. But for the average Filipino saver, the Capital Markets Efficiency Promotion Act (CMEPA) raises a quieter question: what happens when reform, however well-intentioned, overlooks the very people it seeks to serve?


Let’s unravel the layers behind this quiet economic pivot, and why the fallout might not be as efficient as promised.

Old tax, new coverage plainly put

Beginning July 1, 2025, all interest income from bank deposits, whether from savings accounts, time deposits, or peso-and dollar-denominated holdings is uniformly subject to a flat 20% final withholding tax, regardless of the deposit’s duration or type.

This is a major departure from the former tiered framework, which incentivized long-term saving
  • 5 years or more: 0% tax
  • 4 to <5 years: 5% tax
  • 3 to <4 years: 12% tax
  • Less than 3 years: 20% tax
Under the new regime, even funds locked in time deposits for five, ten, or fifteen years will have their entire interest income taxed at the same rate as deposits held for just 90 days — duration no longer grants preferential treatment.

The Palace clarified: only interest income is taxed, not the principal. The ₱100,000 remains untouched; the ₱83.33 it earns each month does not.

The 20% levy isn’t new; it’s been on the books since 1998. But under CMEPA, long-term deposits lose their exemption. What was once encouraged through policy is now subject to the same rules as short-term gains.

“Fairness,” flattened

The Department of Finance maintains that the new law levels the playing field, contending the previous structure “unfairly” advantaged the wealthy — individuals with sizable deposits they could afford to set aside for years without need.

But this assumption collapses under closer scrutiny.

Economist Emmanuel Leyco pointed out that CMEPA will mostly affect middle-income earners who rely on time deposits to grow their savings.

“Kung ikaw naman ay mga high-income o kaya mga wealthy families, hindi ka maglalagay sa mga time deposit lang. Mayroon ka talagang mga investment instruments na doon mo ilalagay,” said Leyco in an interview with Ted Failon & DJ Chacha.

“Ang tatamaan lang nito, ‘yung may mga kaunting naiipon na hindi nila ginagalaw. Mayroon silang kaunting buffer na hindi nila kailangan ang kanilang pera nang mahigit sa limang taon,” he added, noting that many in this bracket may now think twice about keeping their money in the bank.

"Ang matatamaan talaga dito ay 'yung maliit na nag-iimpok."

To truly level the playing field, Leyco said the government should lower the final tax rate to 6%.

Some framed the change as an “opportunity to explore other investments,” while others said it targets the rich, since “long-term deposit interest used to be tax-free.”

But this overlooks the fact that time deposits were mostly used by the cautious middle class — not as a tax shelter, but as a safe, familiar way to grow savings.

Behavioral consequences

The unintended impact of CMEPA may prove more psychological than financial.

In a country where formal saving remains fragile with many Filipinos favoring alkansya jars or informal lending circles over banks; discouraging long-term deposits risks further distancing those the law intends to uplift.

Dr. Tony Leachon, a public health advocate, called it plainly:

“This disincentivises savings, an option that is already low among Filipinos since high inflation robs them of disposable income."

"The public will have nowhere to go since bonds are also charged a 20% tax. If the people do not save, banks will have less to lend and that can strain the whole economy. Specifically for those who need to borrow. Small businesses, farmers and rural folk," he added.

What’s lost isn’t merely a few hundred pesos in tax, but faith in the notion that financial discipline, consistency, and patience will be rewarded over time.

“It’s just 20%,” but let's do the math

Imagine you saved ₱100,000 in a five-year time deposit earning 4% annual interest.
  • Over five years, that earns you around ₱22,000 in interest.
  • Under the old law, if held to maturity, you’d keep the full ₱22,000.
  • Under CMEPA, ₱4,400 of that is taxed.
That’s ₱4,400 gone not due to poor planning, but because the rules shifted midstream.

The sting, once more, isn’t purely financial; it’s emotional. You set your money aside for years, trusting in slow, steady growth. You waited. You committed. And in the end, you were taxed as if you hadn’t.

What’s the government’s rationale?

Finance Secretary Ralph Recto has positioned CMEPA as a step toward “financial inclusion,” arguing that standardizing tax treatment across instruments simplifies the system and reduces confusion which, to be fair, it does.

But simplicity is not always equity.

The law does streamline compliance and eliminate arbitrage opportunities. But in flattening the tiered tax structure, it also wipes out the system’s sole reward for patient, conservative savers — the very group least inclined toward riskier forms of investment.

And ironically, while time deposits now bear the brunt of taxation, other savings instruments, many of them still tax-exempt, remain untouched, such as:
Which raises the question: If the government truly wanted parity, why not rationalize all instruments instead of singling out one?

The banks have responded — quietly

Major banks such as Metrobank, Bank of Commerce, and Security Bank have issued advisories acknowledging the shift in tax policy, clarifying that existing placements made before July 1 will remain under the old tax rules so long as they have yet to mature.

Any new time deposits made after July 1, 2025, are now subject to the flat 20% tax, regardless of term length.

The transition is subtle, almost muted, and perhaps deliberately so, as few would commit to long-term placements knowing that future returns have already been pared down.

Underneath the policy, a bigger dilemma

At its core, CMEPA reveals the tension between revenue generation and behavioral nudging.

Yes, the government expects to raise ₱25 billion in revenue from 2025 to 2030 through this move. Yes, those funds will support social services, infrastructure, and national development.

But if the mechanism to get there involves taxing caution and rewarding liquidity, the message is mixed at best. At worst, it signals that long-term thinking isn’t worth it. That being prudent isn’t profitable unless you’re already rich enough to diversify.

In trying to make capital markets more efficient, CMEPA may have unintentionally made financial planning less worthwhile for the people who actually needed structure the most.

The fine print that deserves a bigger font

CMEPA also includes tax perks for employers who contribute equal or greater amounts to their employees’ PERA. Specifically, they can now claim a 50% additional tax deduction, a nice incentive, but again, one that benefits formal sector employers and employees, not the vast informal labor force.

This law, like many others, is well-intentioned. But in its quest for modernization, it seems to forget a key truth: when equality ignores context, it becomes inequity.