PRESIDENT Ferdinand Marcos Jr. has enacted legislation that removes the tax exemption on interest income from long-term time deposits (TD5).
The provision is part of the newly signed Capital Markets Efficiency Promotion Act (CMEPA), which was enacted into law on May 29, 2025. The law aims to promote capital market efficiency by reducing transaction costs and simplifying taxation.
The thrift bank industry said it had lobbied the President to preserve the tax-free status for deposits with a maturity of five years or more, arguing it would severely impact middle-income savers and retirees.
The industry specifically highlights a provision in the CMEPA which, if implemented, would levy a final tax of 20 percent on “interests, prizes and other winnings” from money market placements, deposit substitutes, trust funds and similar arrangements. This includes “interest income from long-term deposit or investment in the form of saving with maturity of five years or more,” which currently enjoys a tax exemption.
The industry said long-term time deposits are generated mainly from middle-income savers and senior citizens, especially retirees who rely [on] passive income such as interest. These individuals use the income to “supplement their meager pensions and to buy their maintenance medicines.”
The industry also pointed out that the additional tax revenue generated from taxing TD5 would be marginal for the government, estimated at only P6 billion annually. This figure stands in contrast to the government’s overall revenue collections, which rose to P931 billion in the first quarter of 2025, up 13.55 percent from the previous year.
Moreover, the industry warned that removing the exemption could dampen the culture of long-term savings and potentially undermine financial market stability.
An industry player said TD5s provide banks with stable, long-term funding crucial for financing housing and auto loans, and that taxing them might cause a shift to shorter-term or non-deposit investments, reducing liquidity.
The Office of the President said Marcos had limited his line-veto prerogative only to specific instances within the CMEPA. These included the removal of tax exemptions on non-residents’ income from Foreign Currency Deposit Units, the imposition of documentary stamp tax on bettors in authorized number games, and the repeal of tax exemptions for the Philippine Guarantee Corp. Any amendments to the tax-exempt status of time deposits would need to be reflected in the National Internal Revenue Code.
There are about 2,500 branches of thrift banks in the Philippines. / KOC