20% tax on interest income corrects ‘inequitable' system, says DOF

GMA Network

17-07-2025

Banks this month started to implement the uniform 20% final withholding tax (FWT) on interest income, regardless of the term or currency denomination, in line with the passage of the Capital Markets Efficiency Promotion Act (CMEPA), signed into law by President Ferdinand 'Bongbong' Marcos Jr.
The measure has gained public attention, perhaps due to confusion as several online posts have circulated online that it imposes a 20% tax on total savings or bank deposits.
In a statement, the Department of Finance clarified that only the interest earned from a depositor's savings in a bank is taxed 20%, and not the amount of savings itself.
'Huwag maniwala sa fake news. Maging mapanuri sa mga articles at posts na kumakalat online na ginawa para magpakalat ng maling impormasyon,' the DOF said.
(Do not believe fake news. Be critical of articles and posts circulating online that were made to spread false information.)
Under CMEPA or Republic Act 122141 signed into law in May, all interest income deposited in banks are charged a 20% withholding tax, which local banks started to implement on July 1, 2025.
'A final tax of 20% is hereby imposed upon the amount of interest yield, or other monetary benefit earned or received from any currency bank deposit, deposit substitute, trust fund, or other similar arrangements,' Section 6 of the measure reads.
The passage of CMEPA brought about amendments to several provisions of the National Internal Revenue Code, as it sought to 'harmonize' and simplify taxation of passive income across financial instruments and encourage wider public participation in the country's capital markets.
Prior to the uniform rate, taxes were tiered and based on the maturity or lock-in periods — 20% for those less than three years; 12% for three years to less than four years; 5% for four years to less than five years; exemptions for more than five years; and 15% for foreign currency deposit units (FCDUs) or dollars.
'The CMEPA merely corrects this outdated and inequitable system that placed a heavier burden on ordinary Filipinos who do not have the extra cash to put in banks for longer periods,' the Department of Finance (DOF) said in a statement released Thursday.
Citing estimates from the Bangko Sentral ng Pilipinas (BSP), the DOF said 99.6% of total deposits were already subject to the 20% tax rate, while 0.4% enjoyed preferential rates.
'This special tax treatment favored depositors who can afford to park their savings in long-term deposits, making the tax unfair for short-term depositors who face liquidity issues and need immediate access to their funds,' the DOF said.
The finance department also clarified that the 20% rate will only be imposed on the interests earned, and not on the total savings or bank deposits.
'Hindi binubuwisan ang kabuuang halaga ng perang naka-deposito sa bangko. Sa halip, ang interes lamang na kinikita nito ang binubuwisan (The total amount deposited in banks is not taxed. Instead, only the interest earned is taxed),' it said in a separate post on its Facebook account.
The DOF also clarified that the unified rate does not apply to provident savings programs under the Social Security System (SSS) and the Home Development Mutual Fund or Pag-IBIG such as the MP2, which are exempt from tax.
Capital markets
With the measure, the DOF is optimistic that more individuals will look to the capital markets, as it also reduced the stock transaction tax (STT) rate to 0.1% from 0.6% previously, and the documentary stamp taxes (DST) on original issuance of shares to 0.75% from 1%. It likewise removed the DST on collective investment schemes.
It also imposes a uniform 0.75% DST on bonds, debentures, and certificates of stock or indebtedness issued in foreign countries, regardless of jurisdiction, which the government said reinforces neutrality in the tax system.
'These measures are seen to cut transaction costs, encourage market participation and financial planning, boost market liquidity, make the country's equities market regionally competitive, and increase capital market growth,' it said.
CMEPA also provides an additional 50% tax deduction to the actual contributions of employers who contribute an amount equal to or greater than their employees' contributions to Personal Equity and Retirement Accounts (PERA).
The DOF estimates CMEPA to generate P9.0-billion worth of revenues from 2025 to 2028, the end of the term of the current administration. It is expected to raise P500 million this year; P1.6 billion in 2026; P2.8 billion in 2027; and P4.1 billion in 2028.
The government is looking to generate P4.520 trillion in 2025 and P4.983 trillion in 2026 based on the latest report of the Development Budget Coordination Committee (DBCC). — BM, GMA Integrated News