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Advocates Philippines
Understanding The Truth Behind The 20% Tax On Bank Deposit Interest
Photo credit: DOF
Recent discussions online have raised questions and confusion about the 20% tax on savings deposits in banks. Many have mistakenly claimed that this is a new tax imposed on depositors’ money. To clarify, let us examine the facts behind this policy, as illustrated in the Department of Finance’s (DOF) infographics.
First of all, the 20% tax on interest income from ordinary bank deposits is not new. This has been in effect since 1998, as provided under the Tax Reform Act of 1997. What has changed under the Capital Market Efficiency and Protection Act (CMEPA), which was enacted on May 29, 2025 after thorough congressional deliberation, is the removal of preferential rates that previously applied to longer-term deposits and foreign currency accounts.
The previous system was found to be inequitable. Wealthier individuals who could afford to lock their funds in long-term deposits benefited from lower or even zero tax rates on their interest income. In other words, the system favored those who already had more resources, providing them with special treatment in the form of significantly lower taxes compared to ordinary savers.
CMEPA aims to correct this imbalance by ensuring that all interest income from bank deposits is taxed equally at 20 percent, regardless of the maturity of the deposit. This makes the system fairer and more transparent, as everyone now contributes on the same basis, without undue advantage for the wealthy.
It is also important to emphasize that the tax applies only to the interest earned, and not to the total amount of money deposited in the bank. Some posts online have misleadingly suggested that the government will tax the entire deposit, which is false. Your principal or savings remain intact; only the interest income generated by your deposit is subject to tax.
The law is also prospective in application. This means that deposits already enjoying preferential rates before the passage of the law will continue to enjoy those rates and will not be subject to the higher tax.
The DOF reminds everyone to be discerning and cautious when reading articles or posts circulating online, especially those that spread misinformation. The changes introduced by CMEPA are designed to promote fairness in the tax system by removing the undue privileges previously enjoyed by those who could afford to tie up their funds in long-term instruments.
In short, this is not a new burden on ordinary savers. Rather, it corrects a long-standing inequity that favored the wealthy and ensures that everyone pays their fair share on interest income earned from bank deposits.
First of all, the 20% tax on interest income from ordinary bank deposits is not new. This has been in effect since 1998, as provided under the Tax Reform Act of 1997. What has changed under the Capital Market Efficiency and Protection Act (CMEPA), which was enacted on May 29, 2025 after thorough congressional deliberation, is the removal of preferential rates that previously applied to longer-term deposits and foreign currency accounts.
The previous system was found to be inequitable. Wealthier individuals who could afford to lock their funds in long-term deposits benefited from lower or even zero tax rates on their interest income. In other words, the system favored those who already had more resources, providing them with special treatment in the form of significantly lower taxes compared to ordinary savers.
CMEPA aims to correct this imbalance by ensuring that all interest income from bank deposits is taxed equally at 20 percent, regardless of the maturity of the deposit. This makes the system fairer and more transparent, as everyone now contributes on the same basis, without undue advantage for the wealthy.
It is also important to emphasize that the tax applies only to the interest earned, and not to the total amount of money deposited in the bank. Some posts online have misleadingly suggested that the government will tax the entire deposit, which is false. Your principal or savings remain intact; only the interest income generated by your deposit is subject to tax.
The law is also prospective in application. This means that deposits already enjoying preferential rates before the passage of the law will continue to enjoy those rates and will not be subject to the higher tax.
The DOF reminds everyone to be discerning and cautious when reading articles or posts circulating online, especially those that spread misinformation. The changes introduced by CMEPA are designed to promote fairness in the tax system by removing the undue privileges previously enjoyed by those who could afford to tie up their funds in long-term instruments.
In short, this is not a new burden on ordinary savers. Rather, it corrects a long-standing inequity that favored the wealthy and ensures that everyone pays their fair share on interest income earned from bank deposits.
Jul 17, 2025
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