Miscommunication on bank deposits tax
The first day of effectivity (July 1, 2025) of the Capital Markets Efficiency Promotion Act with regard to the tax on interest on bank deposits seemed to have started off on the wrong foot.
Shortly after the Department of Finance (DOF) announced the implementation of that law, some netizens raised the howl that it imposes a 20-percent tax on their savings and checking accounts.
Because those posts became viral and put the government in a bad light, the DOF came out to debunk that mistaken belief and clarified that only the interest earned from deposits—and not the entire amount of the deposit—would be taxed.
What’s more, the tax will apply only to deposits made starting July 1, 2025. In other words, it will be prospective, not retroactive, in effect.
All benefits or privileges that deposits made before that date that have already accrued shall remain valid and binding.
The law removed the tax exemption earlier granted to deposits that remain in place for at least five years and applied the 20-percent tax uniformly regardless of the term of the deposit.
Recall that the preferential treatment on long-term deposits was aimed at encouraging depositors to keep their money in the bank for longer periods so it can be used by banks for investments purposes.
But the problem is, that arrangement favored only well-heeled depositors who can afford to keep their money in the bank for long periods, a privilege that the majority of Filipinos are unable to enjoy because of financial constraints.
The erroneous impression about the application of the income interest tax may be partly traced to the manner by which news about the law was announced, which, aside from that tax, covered, among others, the tax treatment on passive income and capital market transactions, incentives for stock market trades and reduction of the documentary stamp tax.
News about the tax was not as elaborate compared to the other items in the law and was written in a language that only people who have a firm grasp of financing and banking operations can easily understand.
By and large, the reports that came out in the media quoted portions of the media release on the law.
This is understandable because reporters refrain from commenting on official statements lest they commit a mistake in their reporting.
For laypeople who are already dismayed about the low interest on their bank deposits, news about the tax without a clear explanation (or emphasis) on its limited application made the tax stand out from their reading.
Bear in mind that for them, money is a gut issue. Their bank deposit, no matter how small, is their reserve fund for emergencies or unexpected expenses and a way to avoid going to loan sharks if the need for quick funds arises.
For obvious reasons, the loss of any fraction of that money to taxes would be completely unacceptable. No way!
Thus, they cannot be faulted for going to social media to protest what they consider as an unreasonable assault by the government on their limited finances or hard-earned money.
That route was the cheapest way for them to seek redress for the perceived taking of their money by the government.
Although news about the tax on bank deposits may rightfully be described as fake news, that was unavoidable because of the lack of clarity about the true application of the tax.
Aside from personal concern about the safety of their deposits, there is the lingering disappointment or frustration by the majority of Filipinos over the blatant misuse of their taxes.
There’s much to be desired from the quality of public services the government is supposed to provide using funds from direct and indirect taxes.
Then there are persistent reports of overpriced government purchases and projects that appear to be an accepted norm in government service.
The manual on how to announce new taxes may have to be rewritten to avoid a repeat of the embarrassing incident over the 20-percent tax on interest on bank deposits.
