Implementing rules of CMEPA: A spring within its source?

The Capital Markets Efficiency Promotion Act (CMEPA) took effect on July 1 following its complete publication. CMEPA was passed in recognition that the financial sector plays a significant role in the long-term growth of the national economy. A key policy consideration of this law is to allow our capital markets to develop as efficiently as possible, with the least intervention.

Drafts of several implementing rules and regulations (IRRs) have been circulated. On passive income, it is observed that the regulations implement the changes to the rates of taxes effective “1 July 2025.” The regulations adopt the definitions introduced by CMEPA and present a summary of the applicable tax rates for different types of taxpayers. The draft regulations also reflect the veto message of the President recognizing that any income of nonresidents from transactions with depositary banks under the foreign expanded system shall continue to be exempt from tax.

Before CMEPA, taxpayers could exclude “gains realized from the sale, exchange, or retirement of bonds, debentures, or other certificates of indebtedness with a maturity of more than five years” from gross income. CMEPA amended this rule. Instead, taxpayers may exclude from gross income specific government bonds or instruments issued by government that fund capital expenditures or high-priority programs under the Philippine Development Plan, as determined by the Secretary of Finance. The current draft regulations, however, do not specify the government bonds covered by the exemption.

The draft regulations also implement the additional allowable deductions afforded to the financial sector. Securities held by a dealer will be considered as ordinary assets and if deemed worthless, such instruments will be considered as ordinary losses deductible from taxable income. The deductions include losses from wash sales of stock or securities, provided the same arises out of transactions made in the ordinary course of the business. Prior to CMEPA, Revenue Regulations (RR) 05-99 required taxpayers to present clear and convincing evidence that securities were worthless to claim capital losses. It is observed that this requirement is stated in the draft regulations.

The draft regulations also implement that any interest income from debt instrument, bank deposit, deposit substitutes, trust funds and other similar arrangements, such as bonds, notes or other interest bearing obligations of residents, corporate or otherwise, regardless of the place of execution of said instruments, including debt or debt securities issued by the government or any of its agencies or instrumentalities, are considered to be sourced within the Philippines. The draft regulations adopt the amended provision of Section 42 and adds the phrase “regardless of the place of execution of said instruments.” It is observed that there is no change in the situs of interest income, it remains to be based on the residence of the payor.

The draft regulations provide that for sales of shares in a domestic corporation listed and traded on both local and foreign stock exchanges, the selling shareholder, or through the stockbroker or authorized representative, is the one responsible for collecting and remitting the stock transaction tax, as well as complying with all related reporting requirements. A stock transfer agent, corporate secretary, or stockbroker who causes the registration of transfer of ownership or title on any share of stock in violation of the Tax Code, or its implementing rules shall be the one penalized.

On the deductibility of Personal Equity and Retirement Account (PERA), the draft regulations illustrate scenarios where an employer may claim a deduction. These deductions apply to qualified employer’s contributions made to PERA on or after July 1.

On the removal of pickups from excise tax exemption, the draft regulations amend relevant provisions of RR 25-2003, primarily removing pick-ups from the list of tax-exempt automobiles. Within 15 working days from the effectivity date of these Regulations, all manufacturers, assemblers, and importers are required to submit: a.) an updated sworn statement; and, b.) a notarized inventory list.

The draft regulations also reiterate the lower DST rates and tax exemptions. The Bureau of Internal Revenue (BIR) issued Revenue Memorandum Order (RMO) 35-2025 to revise Alphanumeric Tax Codes in BIR Form 2000 and reflect updates in revenue sources.

Our lawmakers expressly recognized in CMEPA that tax administration is a driver of economic growth. By making tax compliance easier and equitable, progressivity is ensured and tax effort is improved. Before CMEPA, the Philippines had the highest stock transaction tax in Southeast Asia. Reduced rates on dividends, stock transaction tax, and DST enhance regional tax competitiveness and are expected to attract more foreign investors.

CMEPA instructs the issuance of IRRs within 60 calendar days from effectivity. The Secretary of Finance has until Aug. 30 to issue the final implementing rules and regulations, which are to take effect 15 days after publication. These promulgated regulations must be issued within the confines of CMEPA, and, most importantly, aligned with the basic principle that a spring cannot rise higher than its source.

The views and opinions expressed in this article are those of the author. This article is for general information and educational purposes, and is not o ff ered as, and does not constitute, legal advice or legal opinion.

Kaye Geozen T. Ebuengan is an associate of the Tax department of the Angara Abello Concepcion Regala Cruz Law Offices.

ktebuengan@accralaw.com

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