Explaining the Capital Markets Efficiency Promotion Act
By: Atty. Euney Marie Mata-Perez on July 3,2025
ON May 29, Republic Act (RA) 12214, or the Capital Markets Efficiency Promotion Act (Cmepa), was signed into law, amending certain provisions of the National Internal Revenue Code (“Tax Code”). It took effect on July 1.
Cmepa was passed for the significant role that the financial sector plays in the long-term growth of the national economy, and that the optimal taxation of capital markets, and the products and transactions that come with them, are essential elements in developing capital markets.
Thus, the government recognizes the need for a simpler, fairer, more efficient and regionally competitive passive income tax system to encourage savings, as well as develop and deepen capital markets.
In a nutshell, Cmepa lowered or standardized tax rates of capital transactions and expanded income tax exclusions to cover certain instruments, as follows:
1. It lowered the stock transaction tax (STT) from 0.6 percent of the gross selling price or gross value in money of the shares of stock sold, bartered or exchanged to 0.1 percent. This will encourage more investments in shares listed in the Philippine Stock Exchange.
2. It extended the application of the STT to gains derived on sale or disposition of (a) other securities listed and traded in a stock exchange; and (b) shares of stock of a domestic corporation listed and traded through a foreign stock exchange. Previously, such gains were subject to the regular corporate income tax.
3. It applied the 15-percent final capital gains tax on sale of shares of a domestic corporation to include disposition of shares in a foreign corporation. Previously, income or gains from disposition of shares in a foreign corporation were subject to the regular corporate income tax.
4. It expanded exclusions from gross income to include: (a) interest income and gains from the sale, transfer or disposition of project-specific bonds; and (b) gains from redemption of units of participation in a Unit Investment Trust Fund (UITF). Previously, the exclusion was limited to gains on redemption of shares in a mutual fund.
5. It lowered the documentary stamp tax (DST) on original issues of shares of stock from 1 to 0.75 percent. The law also fixed a stand-alone rate of 0.75 percent for bonds, debentures and certificates of stock or indebtedness issued in foreign countries, instead of referring to the rate for similar instruments issued in the Philippines. The DST on all debt instruments is now expressly restated as a fixed percentage of 0.75 percent.
6. It expressly added the following transactions as exempt from DST: (a) redemption or other disposition of shares of stock listed and traded through a local or foreign stock exchange; (b) original issuance, redemption or other disposition of shares in a mutual fund company; and (c) issuance of certificate or other evidence of participation in a mutual fund or UITF.
This settles the long-standing issue of whether or not mutual fund shares or UITF are taxed like shares for DST purposes.
7. It standardized the final tax on interest income at 20 percent (except for those earned by nonresident foreign corporations or nonresident aliens not engaged in trade or business within the Philippines).
Cmepa, however, did not just reduce rates or expand the exclusion list. It also modified the taxation of some items, as discussed below:
a. In an attempt to probably simplify the system, Cmepa deleted from the list of exclusions from gross income the gains from sale or retirement of bonds, debentures or other certificates of indebtedness with maturity of more than five years. It also deleted the exemption from income tax of interest income from long-term deposit or investment in the form of savings, common or individual trust funds, deposit substitutes, investment management accounts and other investments evidenced by certificates earned by individual taxpayers.
b. It sought to remove the income tax exemption of nonresidents from income from transactions with depository banks under the expanded foreign currency system, but these amendments were vetoed by the President.
c. It limited the application of the 20 percent final withholding tax on royalties to only those which qualify as “passive income,” effectively subjecting nonpassive income to the ordinary corporate income tax. In this connection, Cmepa introduced a definition of what constitutes “passive income” as any income that is earned from sources that do not require a taxpayer’s active pursuit and performance of trade or business, and is not subject to value-added tax imposed in the Tax Code.
d. It repealed or modified certain laws which provided tax exemptions on interest income, capital gains tax, and DST, such as RA 3844, as amended (Agricultural Land Reform Code), and RA 3591, as amended (An Act Establishing the Philippine Deposit Insurance Corp.).
To encourage employers to make contributions to employees’ retirement accounts under RA 9505 (PERA Act of 2008), Cmepa allows private employers to claim an additional deduction of 50 percent of the employer’s actual contributions (subject to the maximum allowed by law) to such accounts.
The Department of Finance is mandated to issue rules and regulations within 60 calendar days from the effectivity of the act, after due consultation with the private sector.
Euney Marie J. Mata-Perez is a CPA lawyer and the managing partner of Mata-Perez, Tamayo & Francisco (MTF Counsel). She may be reached at info@mtfcounsel.com or visit MTF website at www.mtfcounsel.com.