The Department of Finance (DOF) said Thursday it engaged finance sector stakeholders to further refine the proposed bill on simplifying passive income tax and other financial instruments.
The DOF said it took note of the concerns raised by the stakeholders and underscored the need for close collaboration to enhance the proposed Package 4 of the Comprehensive Tax Reform Program (CTRP).
A priority measure of the Marcos administration, Package 4 of the CTRP aims to make the taxation of passive income, financial intermediaries and financial transactions simpler, fairer and globally competitive.
The proposal will ensure a more efficient Philippine tax system, boost the competitiveness of the country’s capital markets and foster greater financial inclusion among Filipinos, the DOF said.
Under the guidance of Finance Secretary Ralph Recto, the DOF refined its proposal with the goal of maintaining the structure of some products and instruments while deferring the implementation of certain provisions by 2028.
Interest income tax will be harmonized at 20 percent in 2024, while royalties will be maintained according to the existing Tax Code until 2027, subsequently harmonized and decreased to 15 percent in 2028.
The DOF said the dividend income tax will remain unchanged until 2027, with a proposed harmonization of 10 percent in 2028.
The stock transaction tax will gradually be reduced annually by 0.1 percent, from 0.5 percent to 0.1 percent in 2028.
Current taxes on financial transactions, including sales, agreements to sell, memoranda of sales, deliveries or transfer of shares or certificates of stocks, will be maintained until 2027 and subsequently removed in 2028. The same timeline applies to taxes on all bills of exchange or drafts.
Tax rates on bank checks, drafts, certificates of deposit not bearing interest and other instruments will remain unchanged.
Meanwhile, from the current 12 percent VAT imposition on HMO, pre-need and pension plans, a 2 percent premium tax will be imposed to harmonize the instruments with the tax on life and health insurance. This is to encourage participation in life insurance products.
Rates on policies of insurance upon property, fidelity bonds and other insurance policies will gradually be decreased annually by 1 percent, from 12.5 percent to 7.5 percent in 2028.
Taxes on Philippine Charity Sweepstakes Office (PCSO) tickets, prizes, and other winnings will have no changes.
Taxes on mortgages, pledges and deeds of trust will stay as is until 2027, after which they will be lowered to a 0.3 percent rate in 2028.
The measure is being taken up by the Technical Working Group (TWG) formed by the Senate Committee on Ways and Means. It was approved by the House of Representatives on Nov. 14, 2022.