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Major Philippine banks have begun applying a flat 20% final withholding tax (FWT) on interest income from deposit products, in line with the newly implemented Capital Markets Efficiency Promotion Act (CMEPA) or Republic Act No. 12214, which took effect on July 1, 2025.
CMEPA Effect: 20% Flat FWT on Interest Income
In a report from Philstar, major banks such as Metropolitan Bank & Trust Co. (Metrobank), Union Bank of the Philippines (UnionBank), and Security Bank Corp. (Security Bank) confirmed that the new rate now applies uniformly to interest earnings from both peso and foreign currency accounts, regardless of term or currency, effectively replacing the country’s previous tiered and preferential tax system.
Before July 1, 2025, peso time deposits held for five years or more were exempt from final withholding tax, while those with maturities of four to less than five years were taxed at 5 percent, three to less than four years at 12 percent, and less than three years at 20 percent
Meanwhile, interest on foreign-currency time-deposit accounts was previously subject to a 15% final withholding tax for resident investors
The law is noted to be a key reform aimed at simplifying the tax structure on passive income to reduce friction costs and align with international standards.
In an advisory, Metrobank highlighted that CMEPA supports a more inclusive and efficient financial system by standardizing a 20% tax on interest income from deposits.
“In line with the government’s goal to create a more inclusive and efficient financial system, CMEPA seeks to simplify the tax treatment of passive income and capital market transactions, reducing investor costs, and aligning the country’s tax policies with international standards. This reform benefits both institutional and individual Filipino investors who seek to grow and diversify their investment portfolio.”
Metropolitan Bank & Trust Co.
Moreover, Security Bank also announced the implementation of new tax rates on select financial products in compliance with CMEPA. In a public advisory, the bank noted that existing investments made prior to July 1 will retain their original tax treatment until maturity.
“CMEPA is a modern reform that brings the Philippines in line with global practices. It helps grow our economy by making it easier for businesses to raise money, ensures the government can manage its finances wisely, and encourages more people—including individuals and institutions—to invest in the local financial markets. Investors can also now enjoy a streamlined, more predictable tax regime.”
Security Bank
On the other hand, UnionBank’ of the Philippines’s digital banking arm, UnionDigital, and subsidiary, City Savings Bank, also announced changes to the tax treatment of deposit interest income.
Like the other banks, the banks clarified that deposits made before July 1 will retain their original graduated tax rates until maturity, while all new deposits from that date onward are now subject to a uniform 20% final withholding tax.
In addition, all banks emphasized further updates may follow upon the release of implementing rules from the Bureau of Internal Revenue.
What is CMEPA?
Republic Act No. 12214, the Capital Markets Efficiency Promotion Act, was signed into law on May 29, 2025. It standardizes final withholding tax on passive income, cuts the stock transaction tax, lowers documentary stamp tax rates, and aligns Philippine capital markets taxation with regional norms to reduce friction costs and broaden participation
In a previous analysis, tax lawyer Abimelech Rigodon noted that the fragmented tax system has long discouraged investor participation and capital formation. By applying a uniform rate, CMEPA seeks to improve transparency, predictability, and investor confidence in the Philippine financial system.
The simplified interest income tax is just one of several provisions under CMEPA, which also includes reductions in the stock transaction tax, capital gains tax alignment for unlisted shares, and incentives for retirement savings via the Personal Equity and Retirement Account.
Department of Finance Secretary Ralph Recto earlier said the law is expected to generate over ₱25 billion in revenue through 2030 and help lower the fiscal deficit while improving access to capital and investment opportunities for ordinary Filipinos.
This article is published on BitPinas: Banks Impose Steep 20% Tax on Savings Interest as CMEPA Takes Effect
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