Tax Articles

The Capital Markets Efficiency Promotion Act

By: Atty. Mabel L. Buted

Mabel L. Buted Partner   +632 8403-2001 loc.160 This email address is being protected from spambots. You need JavaScript enabled to view it. View Profile

Our tax laws are significantly evolving. Our government is trying and continuing to develop and improve our system in taxation as the tax system and tax administration play a key role in the attainment of the objectives of easing the doing of business in the country, attracting more foreign investments, increasing revenues, and reducing poverty. In this year alone, three crucial laws were enacted – RA No. 11976 (the Ease of Paying Taxes Act or EOPT), RA No. 12001 (the Real Property Valuation and Assessment Reform Act or RPVARA), and RA No. 12023 (the law on VAT on Digital Services).

The Comprehensive Tax Reform Package Program of the government started in 2018. The CTRP Program was created to make the tax system more equitable and efficient. It consisted of four packages, three of which had already been passed.

The first package (Package 1) is the Tax Reform for Acceleration and Inclusion Law (TRAIN or RA No. 10963) that took effect on January 1, 2018. TRAIN sought to provide tax relief to individual taxpayers who are earning less by reducing the personal income tax rates applicable on their income. Package 2 is the CREATE Law (Corporate Recovery and Tax Incentives for Enterprises or RA No. 11534). It was signed into law in early 2021, a time when the country was in the middle of recovery from the challenges brought by the COVID-19 pandemic. The law focused on the rationalization of income tax and fiscal incentives of corporate entities to make the Philippines a more competitive and attractive venue for foreign investments. Package 3 is, as mentioned, the RPVARA, which was recently enacted this year. The Act harmonizes the country’s system in the valuation of real properties. The last package (Package 4) is still pending enactment. This is the Passive Income and Financial Intermediary Taxation Act or PIFITA. PIFITA seeks to simplify taxation of capital income and financial services. The bill was approved by the House of Representatives on final reading in November 2022. To date, it is awaiting passage by the Senate.

Pending the enactment of PIFITA, an “alternative” bill was introduced through the Capital Markets Efficiency Promotion Act (CMEPA). CMEPA is a “smaller bill” that is easier to pass according to Senator Gatchalian (https://www.bworldonline.com/economy/2024/10/07/626343/govt-revenue-seen-taking-hit-from-house-capital-reform-bill/). Similar to PIFITA, CMEPA aims to improve the country’s competitiveness in the capital markets.

One of the significant changes that we are expecting from CMEPA is the reduction of the stock transaction tax from 0.60% to 0.10% on sale of shares of stock listed and traded through the local stock exchange. Also, under CMEPA, cash and property dividends received by nonresident alien individuals, whether or not engaged in trade or business in the Philippines, from domestic corporations and regional operating headquarters of multinational companies will be subjected to the same tax rate of 10% applicable to dividends received by Filipino citizens and resident aliens. At present, dividends of nonresident aliens are subject to higher tax rates – nonresident aliens engaged in trade or business are subject to tax at 20% while those not engaged in trade or business are taxed at 25%.

Documentary stamp tax (DST) on property and fidelity insurance will be imposed in the same manner as DST is imposed on life insurance policies. Currently, life insurance policies are exempt or subject to one-time DST ranging from P20.00 to P200.00, depending on the amount of the insurance. On the other hand, insurance upon property and on fidelity bonds are subject to DST at P0.50 for each P4.00 of the premium charged. If CMEPA is passed into law, similar with life insurance, property insurance, and fidelity policies worth less than P100,000.00 would be exempted from DST while those worth than P1 million will enjoy maximum rate of P200.00.

Further, in CMEPA, winnings from Philippine Charity Sweepstakes Office (PCSO) and lotto above P10,000.00 will be taxed at lower 10% rate from the present 20%. PCSO and lotto winnings not exceeding P10,000.00 would continue to be exempt from income tax. DST on horse race tickets or PCSO lottery tickets will be reduced from 20% to 10%.

There are other pending tax legislations. One of them is the CREATE MORE bill which I discussed in my previous article. Others are the Taxpayer’s Bill of Rights and Obligations Act (SB No. 1806) and Single-Use Plastic Bags Tax Act (SB No. 1844).

With all these significant developments, it is critical for taxpayers to be informed so they can timely adjust and assess the implications to their businesses and obligations. Stay tuned for more updates.