BWorld 809, 10 issues about CMEPA and US-PHL trade

10 issues about CMEPA and US-PHL trade

July 22, 2025 | 12:02 am

My Cup Of Liberty

By Bienvenido S. Oplas, Jr.

https://www.bworldonline.com/opinion/2025/07/22/686502/10-issues-about-cmepa-and-us-phl-trade/

 

Last week, lots of misconceptions (if not outright falsehoods) about the new Capital Markets Efficiency Promotion Act (CMEPA) circulated on social media. And today, President Ferdinand R. Marcos, Jr. is meeting with US President Donald Trump at the White House. Among the topics to be discussed between them is the 20% tariff on Philippine exports to the US. I will discuss both topics here.

 

PHL SAVINGS RATE AND CMEPA

I checked the savings rate as a percentage of GDP (S/GDP ratio) and saw that the Philippines had somehow caught up with some East Asian neighbors like Hong Kong and Malaysia in 2019. But when the lockdown dictatorship happened in 2020, many people’s savings evaporated and now we have the lowest S/GDP ratio in Asia (see Table 1).

 

We need to devise ways to raise our S/GDP ratio. The newly enacted CMEPA (RA 12214) is one tool, and yet it encountered pushback due to misconceptions. Among these are the following:

 

1. The CMEPA taxes our bank savings. Wrong. It taxes only the interest income of our savings. For instance, savings of P100,000 in a bank earning, say, 0.8% a year, means an interest income of P800/year. A tax of 20% means a tax payment of only P160/year.

 

2. The 20% final withholding tax (FWT) on interest income is due to CMEPA. Wrong. That FWT is an old law under the National Internal Revenue Code of 1997 (28 years ago), charging a 20% final tax on interest earned from bank deposits with a maturity of less than three years. The tax on interest income for both savings and time deposits is now a uniform FWT of 20%. There is no more preferential treatment for wealthy depositors.

 

3. The CMEPA raises transaction costs for other investments. Wrong. It reduces transaction costs. Before, the Philippines had the highest Stock Transaction Tax (STT) on the sale or exchange of shares in the ASEAN at 0.6%. CMEPA reduced the STT to 0.1%, so investing in the Philippine Stock Exchange (PSE) becomes more cost-competitive.

 

My friend and fellow free marketer Eric Jurado, who owns The International Investor which manages the SeA (Southeast Asia) Focus Portfolio, has good data on the trading value in the stock markets of the ASEAN-6 in May this year. Looking at value in billion dollars and the number of listed companies, respectively, these are the results: Thailand, $25.2 billion, 857 companies; Singapore, $21 billion, 612; Vietnam, $17.9 billion, 699; Indonesia, $15.3 billion, 956; Malaysia, $12.1 billion, 1,056; and the Philippines, $3 billion, only 284 companies. With CMEPA, we hope that our country’s stock market would become as dynamic as Malaysia’s or Indonesia’s in a few years.

 

4. The CMEPA has raised other taxes. Wrong. It reduced the Documentary Stamp Tax (DST), or stamp duty on the original issuance of shares by corporations, from 1% to 0.75%. The equity side — sales tax has been reduced from 60 basis points to just 10 basis points.

 

5. The CMEPA discourages savings with new financial taxes. Wrong. The CMEPA encourages savings outside of time deposits, like the stock market or real estate investment trusts (REITs) where the tax is lower at 10% and is liquid, meaning the money can be pulled out any time and is not locked in for several years. Plus, there are other saving programs managed by the government like Pag-IBIG MP2 savings and Retail Treasury Bonds (RTBs), which are additional options for investment by the public.

 

6. Savings of OFWs like time deposit are taxed. Wrong. Savings of OFWs are exempted. In addition, the DST on Mutual Funds and Unit Investment Trust Funds (UITFs) — collective investment schemes which are popular among young professionals and middle-class savers, are now tax-exempt.

 

Bottomline, the CMEPA is a good law. It opens more savings and investment options for the public so they can build their wealth and retirement funds while removing the preferential rates for the very rich who can afford to park their money for several years at higher, untaxed, interest income.

 

US TARIFF AND PHILIPPINE EXPORTS

Continuing the 10 issues, here are the other four which are related to trade.

 

7. The US is the Philippines’ number one exports market. The latest data for January to May this year show that nearly 16% of our total exports went to the US, up from 15% in 2022 and 2023. Japan, Hong Kong, and China are the next three big destinations of our exports (see Table 2).

 

8. The US has imposed a 20% tariff on Philippine exports effective Aug. 1 which is next week. This is lower than the tariffs imposed on most East Asian nations but still high compared to the previous rate of below 10%.

 

9. The Philippines is ready to charge zero tariff on some US exports to us. Two recent reports in BusinessWorld are related to this: “Indonesia-US trade deal poses competition challenges for PHL” (July 16), and “PHL eyes zero tariffs on some US goods” (July 21).

 

Indonesia was earlier slapped with a 32% tariff, but after negotiations, this was brought down to 19% while US exports to Indonesia will be tariff-free. Finance Secretary Ralph G. Recto announced that we are ready to impose no tariffs for imports from the US as part of tariff negotiations with Washington. “Not for all products, but we have identified a set of products.” This is a good position.

 

10. Ultimately, we should push for free trade agreements (FTA) with the US and more countries, go for zero tariffs both ways and reduce non-tariff barriers.

 

There are net gains — the gains are larger than the pains — from lower taxes and from free trade. We should go for these.