‘So who’s complaining about a 20 percent interest deposit tax if Filipinos are not banking at all to save money?’
LAST week, a wave of confusion and outrage swept across the country.
A supposed “new” horrible tax on bank deposits was instantly labeled by many as another burden on the already struggling populace and a ruse to squeeze more from the suffering masses.
Social media went overdrive with condemnations, accusing government of heartlessly targeting overseas Filipino workers (OFWs), senior citizens, and families saving for their children’s future.
The panic fanned by the internet quickly escalated to fears this tax would make banking prohibitive for small depositors, and push them to hoard cash outside the formal banking system.
The alarmist thinking, however, was largely fueled by an utter lack of financial literacy and a susceptibility to reckless rhetoric.
The Department of Finance had to step in, clarifying that the 20 percent tax on interest or income from savings and time deposits is not new at all as it has been in place since 1998, under the National Internal Revenue Code of 1997.
To be clear, the tax isn’t levied on our savings principal but on the interest income your deposits generate. For example, if your P100,000 savings deposit earns P800 in interest annually, a 20 percent tax would amount to P160 per year. This has been the standard practice in the past 28 years.
The only genuine change is that this 20 percent interest tax now applies to all savings and time deposits, regardless of their length or maturity. Previously, the tax on interest deposits primarily applied to short-term bank transactions, effectively exempting longer-term instruments like time deposits that span three to five years.
This adjustment was incorporated into the Capital Markets Efficiency Promotion Act (CMEPA), or Republic Act (RA) 12214, which came into effect in May 2025.
CMEPA is designed essentially to encourage ordinary Filipinos to invest in the Philippine capital markets and promote inclusive growth.
The 20 percent tax across all deposit lengths actually democratizes the banking system, providing a more level playing field for both small and wealthy depositors.
It was also clarified that savings and time deposits placed by OFWs are exempted.
Furthermore, the fears expressed by some that this tax would disproportionately affect middle-class families and young professionals saving for their future are softened by other provisions within CMEPA.
Mutual funds and Unit Investment Trust Funds (UITFs), where many Filipinos pool their money for higher-yielding investments, are now tax-exempt. This means Filipinos can invest their money in state-sanctioned savings instruments like the Pag-IBIG MP2 savings and Retail Treasury Bonds (RTBs), both of which remain tax-free.
Even senior citizens are minimally impacted, as many banks offer preferential fixed deposit interest rates, some as high as 8.5 percent for three-year untouched savings or time deposits.
Even small-time gamblers stand to benefit, as the law removes the tax on betting in games of the Philippine Charity Sweepstakes Office.
We hope CMEPA can also inspire Filipinos to go back to being rabid savers to boost our national savings rate.
Our 15 percent savings rate is way below Singapore’s 53.2 percent and embarrassingly lower than Myanmar’s 31.8 percent, Vietnam’s 25.7 percent, Brunei’s 19.9 percent, and Cambodia’s 17.3 percent.
Data reveals that about 78 percent of Filipinos use the banking system not to save but as a means to get an ATM or pay monthly amortization.
So who’s complaining about a 20 percent interest deposit tax if Filipinos are not banking at all to save money?
The recent uproar, driven by misinformation and a lack of understanding of tax laws, truly highlights a significant gap in the financial literacy of many Filipinos.
As Shakespeare’s play famously declares, this whole episode was, indeed, “too much ado about nothing.”
