DOF proposes harmonized 100% capital income taxes

MANILA, Philippines - A proposal to harmonize all capital income taxes to 10 percent is expected to encourage more depositors and investors to park their money in banks.

“We propose to harmonize all capital income taxes regardless of currency, maturity and type toward 10 percent,” Finance Secretary Carlos Dominguez said.

“This way, the poor pay less on the interest income and the rich pay more,” he told House ways and means committee last Tuesday.

Capital income taxes pertain to final levies charged on bank deposit earnings as well as interest income from investments in bonds.

Under the present law, peso deposits are charged differently depending on their maturities, with those parked for less than three years being slapped with a 20-percent rate.

Money staying put for three to less than four years is taxed 12 percent, four to less than five years with five percent, while those for longer periods are tax-free.

Foreign currency deposits, meanwhile, have a fixed 7.5-percent rate, while interest from investing in bonds are levied 20 percent.

Dominguez said retail depositors with small amount of money do not even feel the benefits of saving in the bank.

“Small depositors are burdened with high tax rates because they save less and cannot keep their money in banks for a long time, while rich depositors, who park their money in banks because they do not have an immediate need for it, are not taxed,” he said.

“Is that fair?” he asked.

A total of 51.86 trillion accounts had deposits worth P9.41 trillion as of the first quarter, central bank data showed. Of that accounts, more than 90 percent were savings accounts.

Of the 46.91 trillion savings accounts, 32.14 million contain P5,000 and below.