Capital Markets Efficiency Promotion Act (CMEPA): A Transformative Step in Philippine Investment Tax Reform

Republic Act No. 12214

Executive Summary

Republic Act No. 12214, or the Capital Markets Efficiency Promotion Act (CMEPA), signed on May 29, 2025 and effective July 1, 2025, aims to simplify, harmonize, and modernize the taxation of passive income and financial instruments in the Philippines. The law seeks to enhance market participation, improve capital flow, and strengthen the country’s alignment with global investment standards. Major reforms include the reduction of stock transaction tax, the unification of final withholding tax rates on interest income, harmonized capital gains tax for unlisted shares, and reductions in documentary stamp tax (DST) on qualified transactions.

1. Context & Policy Objectives

CMEPA was introduced to address inconsistencies in the Philippine tax regime that deter investment and complicate compliance. The law aims to:

• Improve tax neutrality across investment vehicles

• Reduce friction costs in financial transactions

• Align Philippine policies with ASEAN peers to attract foreign capital

• Promote broader participation by retail and institutional investors

2. Key Tax Reforms

A. Stock Transaction Tax (STT)

Reduced from 0.6% to 0.1% of the gross selling price on listed share sales - Applies to both domestic and foreign stock exchanges - Intended to enhance liquidity and encourage greater investor activity

B. Capital Gains Tax (CGT) on Unlisted Shares

Imposes a 15% final tax on the net gain from sales of both domestic and foreign unlisted shares - Resolves previous discrepancies between resident and nonresident taxpayer treatments

C. Uniform Final Withholding Tax (FWT)

A flat 20% FWT now applies to interest income on bank deposits, trust funds, and fixed-income securities held by residents - Royalties taxed at 10% for literary/musical works and 20% for other royalties - Dividends received by individuals are subject to a 10% final tax - Nonresident aliens and foreign corporations subject to 25% tax on certain passive incomes

D. Documentary Stamp Tax (DST) Changes

Original issuance of shares and debt instruments taxed at 0.75%, down from 1% - Exemptions granted to mutual fund and UITF issuances and redemptions.

3. Additional Provisions

   • Broadens definitions of “securities” and “passive income” to include digital and hybrid instruments

   • Allows 50% additional deduction for employer PERA contributions (subject to limits)

   • Revises tax compliance rules for dealers and capital gains filers, including updated reporting timelines and treatment of wash sales

     
     

4. Presidential Line-Item Vetoes

Several provisions were vetoed to preserve fiscal balance:

• DST exemptions for foreign-listed shares and mutual fund transactions were removed

• Retention of income tax exemption on foreign currency deposits by nonresidents

• Rejection of DST exemption for Philippine Charity Sweepstakes Office (PCSO) bettors and PHILGUARANTEE

5. Implications & Strategic Considerations

   • For investors: Reduced transaction costs and clearer rules may encourage broader investment activity

   • For corporations: Tax planning and compliance frameworks must be updated to reflect new rates and reporting obligations

   • For financial institutions: Product design and investor disclosures should be realigned to leverage tax exemptions and reduced DST

   • For policymakers: Expected revenue gains of over PHP 25 billion by 2030 provide fiscal room while advancing capital market depth

Next Steps 

1. Conduct internal tax impact assessments for affected financial products

2. Update systems and templates for STT, CGT, and DST reporting

3. Coordinate with regulators for clarifications via the forthcoming implementing rules

4. Reassess investment and fundraising strategies in light of the updated tax landscape