Nearly a month after implementation, CMEPA has come under national scrutiny, drawing mixed reactions across demographics.
While investors saw a noteworthy uptick in trading activity within the local bourse, the broader public remains vigilant, raising a key question: Is this law working for or against us?
Facts first
CMEPA equalized interest income tax to 20 percent across all bank deposits and certain government securities vs. the tiered system which favored the wealthy minority.
The law also reduced the Stock Transaction Tax (STT) from 0.6 percent to 0.1 percent, documentary stamp taxes (DST) from 1 percent to 0.75 percent, and awarded a 50 percent tax deduction (based on total PERA contribution) for employers with contribution equal to or greater than their employees’ PERA contributions.
However, the Department of Finance later clarified that 99.6 percent of total deposits have already been subject to the 20 percent tax on interest earnings since 1998, debunking claims that this law was specifically designed to penalize savings and push investments.
Despite repeated clarifications, misinformation from unverified sources spread widely online. This fueled discontent and overshadowed any credit due to lawmakers who supported the measure.
What gives?
At first glance, the law was initially misunderstood as penalizing savings while nudging investors toward equities, an unwelcome proposition for a general public that views the local bourse as “slow” and “unrewarding.”
Considering that the PSE index remains near levels seen 12 years ago, it is not surprising that the masses hold this impression of the stock market.
However, the Department of Finance’s clarification made it clear that almost all deposits have been taxed at 20 percent for decades, proving the law was not crafted to punish savers.
Even so, frustration persisted online, with many citizens expressing outrage rather than crediting lawmakers for their efforts.
We have to get in the shoes of our hardworking citizens to truly understand the clamor.
BSP’s Consumer Expectations Survey in the second quarter showed that consumer confidence plunged into negative territory to minus 0.5 percent from plus 4.2 percent in the first quarter, with respondents pointing to “political noise” affecting the delivery of government services as one of the drivers of pessimism.
GDP growth in the first quarter also slowed to 5.4 percent, with multiple macroeconomic headwinds pointing to the likelihood of further slowdown.
This prompted the Development Budget Coordination Committee (DBCC) to revise its 2025 GDP growth target down to 5.5 percent to 6.5 percent despite low inflation, a high employment rate, and a historic P50 per day wage hike in Metro Manila.
Given that economic numbers are softening and consumer confidence is waning, it is understandable that there is pushback against what is perceived as new taxes.
In his recent SONA, the President admitted that even good economic numbers mean little if the effects of growth are not trickling down and people are still struggling to make ends meet.
Acknowledge and refocus
Our understanding of what is fueling the dissatisfaction remains limited.
Acknowledging these shortcomings is crucial in helping the public see the value of the Capital Markets and Economic Participation Act and the potential benefits it presents.
It is an opportunity to refocus discussions in a positive light without insisting that people invest in the capital markets.
Instead, this can be endorsed as an improved option alongside whichever investment vehicle citizens prefer, as every individual is entitled to make their own financial choices.
A shared responsibility
For the government, it is their responsibility to produce tangible results as assurance that taxpayers’ money is serving a clear and meaningful purpose.
It will not necessarily make people more welcoming to new taxes, but at least it will be a less bitter pill to swallow.
For the general public, it is our responsibility to stay vigilant but be correctly informed—for better or worse.
We should not allow misinformation to distract us from important issues, which has become a more frequent occurrence in recent times.
For PSE companies, regulators, and market participants, it is their duty to ensure a trustworthy trading environment to entice the public to invest.
From where we stand, it looks like the Capital Markets and Economic Participation Act has served its purpose so far, with median weekly value turnover increasing by 31.7 percent compared to the previous three months since implementation.
This confirms the positive impact of the law’s best offering, which is reducing friction costs on stock market transactions.
Taking a longer view, we expect the Act to encourage wider market participation once the dust settles, particularly as economic progress becomes more tangible and more people are lifted to a level where they actually have excess funds to invest.
