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Capital Markets Efficiency Promotions Act (RA 12214): A Transformative Tax Reform in the Philippines

  • Writer: Yasser Aureada
    Yasser Aureada
  • May 30
  • 3 min read

Updated: 4 minutes ago



Introduction


On May 29, 2025, President Ferdinand R. Marcos Jr. signed into law Republic Act No. 12214, also known as the Capital Markets Efficiency Promotions Act (CMEPA). This landmark legislation seeks to enhance the competitiveness of the Philippine capital markets, simplify the taxation of passive income, and reinforce fiscal stability by amending multiple sections of the National Internal Revenue Code of 1997 (NIRC), as amended.


Let’s explore how this law changes the tax landscape, especially for investors, financial institutions, and corporations—and how it differs from the previous tax regime.



Key Objectives of RA 12214


  • Promote harmonization and fairness in taxing passive income

  • Encourage foreign capital inflow by retaining key exemptions

  • Reduce transaction costs and improve market efficiency

  • Enhance revenue generation while ensuring fiscal prudence



Major Amendments and Highlights


1. Stock Transaction Tax (STT) Reduced from 0.6% to 0.1%

To encourage more trading activity and align with regional rates, the tax on the sale of shares listed and traded through the local stock exchange is now reduced to 0.1%—a significant drop from the previous 0.6% rate.


2. Standardized 20% Final Withholding Tax on Interest Income

RA 12214 eliminates multiple rates and exemptions. Now, most interest income (e.g., from bonds, bank deposits, etc.) is taxed at a flat 20%. Exceptions apply for nonresident individuals and corporations, who remain subject to a 25% final tax.


For more information, click here.


3. Harmonized Capital Gains Tax on Shares of Foreign Corporations

Capital gains from the sale of shares in foreign corporations not traded on the local exchange are now subject to a flat 15% CGT—mirroring the existing rate for unlisted domestic shares.


4. Lower Documentary Stamp Tax (DST) on Share Issuance

The DST on original issuance of shares is reduced from 1% to 0.75%. Additionally, share issuances and redemptions involving mutual funds and UITFs are now exempt from DST—a move that favors fund-based investing.


5. Removal of Tax Exemptions for Long-Term Deposits

Previously tax-exempt interest from long-term time deposits (5+ years) is now subject to 20% withholding tax, simplifying the system and closing old loopholes.


6. Enhanced Employer Incentives for PERA Contributions

Employers contributing to their employees’ Personal Equity and Retirement Account (PERA) may now claim a 50% additional deduction, provided they match or exceed employee contributions.


Presidential Line-Item Vetoes

President Marcos exercised constitutional line-item vetoes to strike out provisions seen as fiscally risky or policy-inconsistent:


  • FCDU Tax Exemption Retained: Nonresidents’ income from Foreign Currency Deposit Units remains exempt from income tax.

  • DST on Lotto Bettors Rejected: The proposed DST to be imposed directly on lotto players was vetoed to preserve the neutrality of indirect taxes.

  • PHILGUARANTEE Tax Exemptions Preserved: Tax privileges under the Home Guaranty Corporation Act were kept intact to support socialized housing programs.


Legal and Business Implications

  • Investors now face a streamlined, more predictable tax regime.

  • Financial institutions and intermediaries must update compliance systems to reflect harmonized rates and new exemptions.

  • Employers have a new tax incentive tied to retirement fund contributions.

  • Real estate developers and housing finance firms benefit from retained tax breaks that support affordable housing finance.



Final Thoughts

The Capital Markets Efficiency Promotions Act is a forward-looking reform that aligns Philippine taxation with international standards. It supports capital formation, fiscal sustainability, and market participation—particularly from retail and institutional investors.


At Aureada CPA Law Firm, we assist clients in navigating these tax reforms with clarity and strategic foresight. Whether you are a company, investor, fund manager, or HR executive managing PERA plans, our team is ready to help you adapt and thrive under this new tax landscape.



For a comprehensive breakdown of RA No. 12214, including technical details, updated tax rates, compliance requirements, and vetoed provisions, read our latest article here:




Need legal or tax advice on CMEPA and its implications? Get in touch with us today. Let’s simplify compliance and unlock new opportunities for growth.


Contact Us:

Phone: (02) 3224 5601





 
 
 

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