‘Will this well-intended tax nudge Filipinos away from formal banking — just as we were gaining ground?’
IN an era where “financial inclusion” has become the anthem of national development, a new measure risks falling out of tune. Republic Act No. 12214, or the Capital Markets Efficiency Promotion Act (CMEPA), took effect on July 1, imposing a uniform 20% final withholding tax on all interest income from peso-denominated savings accounts.
Proponents hail CMEPA as a strategic simplification — a reform meant to level the fiscal playing field. But among financial inclusion advocates and banking leaders, quiet doubts are growing louder.
Will this well-intended tax nudge Filipinos away from formal banking — just as we were gaining ground? Will it undo the trust built through years of concerted effort to bring more Filipinos into the financial system?
Progress made, now jeopardized
The Bangko Sentral ng Pilipinas (BSP) and allied financial institutions have made hard-won progress.
In 2021, around 44 million Filipinos lacked access to formal financial services.
By 2025, that figure shrank to just 4.1 million adults, thanks to digital onboarding, mobile wallets, and inclusive banking reforms.
These initiatives, often coupled with financial literacy campaigns, have been crucial in building public trust and encouraging first-time savers.
Despite this momentum, bridging the final kilometers — the poorest five percent — remains elusive. And now, into this fragile landscape, CMEPA throws up a fresh barrier: a flat tax on already meager interest income.
As of December 2024, total deposits reached ₱20.37 trillion. Savings deposits alone accounted for ₱8.8 trillion — the backbone of retail banking and small-scale financial participation.
Yet the reward for saving is minimal.
A ₱10,000 deposit at 0.125% annual interest earns just ₱12.50 — and under CMEPA, this shrinks to ₱10.00.
That ₱2.50 loss may seem negligible to policymakers, but for someone like Manang Cecile, a sari-sari store owner in Barangay Payatas, Quezon City, it’s more than math.
“It’s hard enough to save from daily sales. Now, even the small reward is taxed? It feels discouraging,” Manang Cecile said.
Revenue vs resilience
From the government’s side, CMEPA is designed to eliminate arbitrage and harmonize financial taxation.
The Department of Finance, led by Secretary Ralph Recto, the Bureau of Internal Revenue under Commissioner Romeo Lumagui Jr., and the BSP, led by Governor Eli Remolona Jr., aim for improved tax collection and greater capital efficiency.
Assuming a modest 0.15% average interest on ₱8.8 trillion in savings, total annual interest income clocks in at roughly ₱13.2 billion. The 20% tax would yield ₱2.64 billion — excluding higher-yield time deposits and corporate accounts.
Aggregate collections could easily breach ₱10–15 billion annually, supporting public education, health care, and social protection budgets.
But irony lies in scale.
A ₱35 million property sale parked in a savings account earns just ₱43,750 — taxed at ₱8,750 under CMEPA. By contrast, investing in a UITF with a 1% management fee costs ₱350,000, and stock trades may exceed ₱100,000 per transaction.
In effect, CMEPA taxes savings more aggressively than investment risk — penalizing caution over capital speculation.
