The Department of Finance (DOF) encourages Filipinos to diversify their investment portfolios as the new Capital Markets Efficiency Promotion Act (CMEPA) reduces transaction costs, making it easier and more affordable to channel hard-earned savings into productive investments.

In line with the DOF’s push to promote financial literacy and inclusion, the law effectively lowers the barriers that prevent investors from entering the capital markets.

“There is no truth that CMEPA discourages people from saving and investing. Actually, CMEPA is not just a revenue bill, but an act to boost our capital markets and allow for greater participation, especially among ordinary Filipinos,'' Finance Secretary Ralph Recto said.

Recto cited other saving programs offered by the government, such as Pag-IBIG MP2 savings and Retail Treasury Bonds (RTBs), as options for the public to invest in.

The Bangko Sentral ng Pilipinas (BSP) 2021 Financial Inclusion Survey shows that only eight million out of 77 million Filipino adults own investment products ? equivalent to one out of every ten Filipinos.

Before CMEPA was implemented, the Philippines had the highest Stock Transaction Tax in the ASEAN region at 0.6%, disincentivizing investors from trading.

Now, CMEPA reduced the tax on the sale or exchange of shares to 0.1 percent, making investing in the Philippine Stock Exchange (PSE) more cost-competitive.

“The other benefit that people are not really highlighting is on the equity side??sales tax has been reduced from 60 basis points to just 10 basis points so it further reduces friction costs for those who trade in the market,” Sun Life Investment Management President Mike Enriquez said in an interview.

Ordinary Filipino investors stand to benefit since a lower STT increases their net returns by minimizing the amount of money deducted from the sale of their shares of stock. Lower transaction costs will also contribute to increased trading activity, leading to tighter spreads.

In addition, CMEPA reduced the Documentary Stamp Tax (DST) or stamp duty on the original issuance of shares by corporations from 1 percent to 0.75 percent, lowering the cost of capital and allowing more investors to participate in the market.

The DST on Mutual Funds and Unit Investment Trust Funds (UITFs)??collective investment schemes which are popular among young professionals and middle-class savers, is tax-exempt.

These pooled investment schemes allow a single investor to put money into a broader range of asset types and share risks and benefits with other participants??a powerful means to grow one’s portfolio.

“Bottomline is to encourage people to save more, to invest more, to build their retirement funds, build their wealth funds, financial literacy, make their money work better for them,” RCBC Chief Economist Mike Ricafort said.

Tax on interest income is now a uniform final withholding tax (FWT) rate of 20 percent, regardless of the tenure of the financial instrument. This means no more preferential treatment for wealthy depositors. DOF Information Management Service