Capital Market Efficiency Promotion Act (CMEPA) Explained: Why the Proposed Tax Reform May Hurt Filipino Savers

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THE CLAIM:

"The government is now planning to tax our savings — the little money we try to set aside after taxes, inflation, and bills."

WHAT’S FALSE OR MISLEADING ABOUT THIS CLAIM:

There is no current law or finalized proposal under Ralph Recto’s leadership that directly imposes a new tax on personal savings like the money you store in your bank account, piggy bank, or emergency fund.

However, what sparked public outrage was a Department of Finance (DOF) proposal that includes removing certain tax exemptions or harmonizing taxes across financial instruments — particularly on:

Interest income from long-term deposits (currently tax-exempt if held for 5 years)

Time deposits and trust funds

Passive income from investments

This means the DOF may seek to remove the tax exemption that encourages long-term saving — which is not yet law and must still go through Congress.

Senate President Ralph Recto, as a longtime fiscal policy leader, has supported various tax reform packages. While he hasn't authored a direct “tax on savings” bill, some speculate he may support parts of the DOF’s broader tax rationalization goals — but this remains to be seen.

THE CONTEXT YOU SHOULD KNOW:

Under the current tax code:

Savings accounts already earn interest subject to a 20% final withholding tax.

But long-term investments (5+ years) are tax-exempt to encourage financial planning and discipline.

The DOF’s new Comprehensive Tax Reform Package (CTRP) includes revisiting these exemptions under the guise of “efficiency” and “broadening the tax base.”

Critics argue that such a move would hurt the middle class, especially those saving for retirement or their children’s future — and erode trust in government promises of rewarding discipline and prudence.

WHAT TO WATCH FOR:

No new taxes are being implemented yet. Everything is still in proposal stage.

Any changes must pass through both the House and the Senate, and will require public hearings.

You have the right to voice opposition now — while it's being debated.

Let’s expound on the real issue and explain what CMEPA actually is — especially in the context of the current financial and tax reform proposals in the Philippines that have stirred public concern.

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What Is CMEPA?

CMEPA stands for the Capital Market Efficiency Promotion Act — a legislative measure currently being proposed as part of the government’s Comprehensive Tax Reform Program (CTRP) spearheaded by the Department of Finance (DOF).

It is not yet a law, but is part of the Package 4 of the tax reform agenda aimed at rationalizing taxes on passive income, financial instruments, and other capital assets.

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What Is the Real Issue Behind CMEPA?

The main issue lies in the removal or reduction of current tax exemptions that protect ordinary Filipinos who save or invest for the long term.

CMEPA’s goal is to simplify and harmonize the tax system involving passive income, such as:

• Interest on bank deposits

• Dividends

• Capital gains from stocks

• Profits from bonds, mutual funds, unit investment trust funds (UITFs), and other financial instruments.

But here’s the catch:

Many of these income streams are currently either:

• Taxed at lower rates, or

• Tax-exempt, especially long-term savings instruments (those held for 5 years or more).

CMEPA proposes to remove these exemptions, arguing that the system is:

• Inefficient

• Full of loopholes

• Favoring the rich who can exploit these tools

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How Does This Affect Ordinary Filipinos?

If CMEPA becomes law without key protections, it will:

1. Remove the tax exemption on long-term bank deposits and investments.

   • Currently, if you put your money in a 5-year time deposit, your interest is tax-free.

   • Under CMEPA, this exemption may be removed, meaning even long-term savers will pay 20% tax on their interest income — just like short-term savings.

2. Hurt middle-class and working Filipinos trying to prepare for:

   • Education

   • Emergencies

   • Retirement

3. Discourage saving and financial discipline, as the tax incentives for responsible money behavior are stripped away.

4.  Potentially divert people away from formal financial institutions and into informal or riskier investments to escape taxes — ironically undermining the capital markets CMEPA aims to strengthen.

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Why Is the Government Doing This?

The Department of Finance justifies CMEPA with the following points:

• The current tax system is fragmented and full of exemptions that benefit the rich.

• There are over 80 tax rates and exemptions for various financial instruments, creating inefficiency.

• Harmonizing rates will simplify the system and increase fairness and revenue.

However, critics say:

• The proposal is not targeted well.

• Middle-class savers, not just the ultra-wealthy, will bear the brunt of the burden.

• It punishes people who followed the rules and saved diligently in the hopes of tax-free long-term growth.

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Reality Check: What CMEPA Is Not

CMEPA does NOT impose a direct “tax on savings” in the literal sense of taxing the amount in your bank account.

But it removes the incentive that previously allowed people to grow their savings tax-free if they kept it invested long-term — which is effectively a penalty on prudent financial behavior.

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What Can Be Done?

It’s not too late to act. CMEPA is still in the legislative pipeline and may be amended or blocked:

•  Demand public hearings where real stakeholders — not just corporations and bankers — have a voice.

•  Pressure lawmakers to retain exemptions for small and middle-income savers.

•  Propose thresholds: exempt savings/investments under a certain amount (e.g., ₱1 million) from tax.

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Final Word

The Capital Market Efficiency Promotion Act (CMEPA) may be efficient in the eyes of technocrats, but for everyday Filipinos struggling with inflation and stagnant wages, it could be the final straw — yet another way the system seems stacked against those simply trying to do the right thing.

The government must be reminded: Simplification should not come at the cost of justice. Efficiency must serve equity — not replace it.

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Would you like me to help you write a position paper, blog article, or social media post to educate others and mobilize support against the worst parts of CMEPA?

BOTTOM LINE:

Yes — there is reason to be concerned about proposals that remove tax exemptions for long-term savings.

But — there is no new tax law yet targeting your basic bank savings or deposit accounts.

So while your emotions are valid, let’s direct them toward informed public discourse, organized advocacy, and demanding transparency and protection for middle-class earners and savers.

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