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.
The Department of Finance (DOF) clarified that only the interest earned from a depositor’s savings in a bank is taxed 20%, and not the amount of savings itself.
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“The CMEPA merely corrects this outdated and inequitable system that placed a heavier burden on ordinary Filipinos who do not have the extra cash to put in banks for longer periods,” the DOF said on July 17.
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.
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.
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. (GMA Integrated News)
