Philippines' Capital Market Reform Law Takes Effect, Aimed at Boosting IPOs and Revitalizing Sluggish Market

Philippine President Ferdinand Marcos Jr. marked the start of the Capital Market Efficiency Promotion Act (CMEPA), which aims to boost the country's sluggish capital markets by slashing trading taxes and modernizing market rules. The law is seen as a foundational step toward revitalizing the market, which has lagged behind its ASEAN peers in liquidity and investor participation. The move is expected to spur hope for more initial public offerings (IPOs) and revitalize the Philippine Stock Exchange.

The Philippine capital markets have taken a significant stride toward modernization and efficiency with the enactment of the Capital Market Efficiency Promotion Act (CMEPA). Enacted on May 29, 2025, CMEPA is a comprehensive tax reform aimed at enhancing the efficiency, simplicity, and competitiveness of the country's capital markets [2].

The act introduces several key changes designed to boost market liquidity and investor participation. One of the most notable adjustments is the standardization of tax rates. Previously, interest income from Philippine-sourced deposits, trust funds, and similar financial instruments was subject to varying rates, but CMEPA now imposes a flat 20% final withholding tax on all such income [2]. This uniformity aims to eliminate arbitrage opportunities and promote fair taxation.

CMEPA also simplifies the tax treatment of royalties, subjecting them to a 20% final tax, except for those derived from books, literary works, and musical compositions, which benefit from a reduced 10% rate [2]. This move supports cultural and creative industries while ensuring a consistent tax regime.

In terms of investment income, dividends are now subject to a 10% final tax, while capital gains from the sale or disposition of shares are uniformly taxed at a 15% final rate [2]. This harmonization encourages fair competition between domestic and foreign investments.

To improve market liquidity and reduce transaction costs, the stock transaction tax on the sale or exchange of listed domestic shares has been significantly reduced from 0.6% to 0.1% of the gross selling price [2]. This lower rate applies to both local and foreign stock exchanges, boosting regional competitiveness and investor appeal.

Further, CMEPA reduces the documentary stamp tax (DST) on original issuances of shares of stock and debt instruments from 1% to 0.75% [2]. This reduced DST rate also covers bonds, debentures, and similar instruments issued both locally and internationally. Certain transactions, such as the sale, exchange, or redemption of listed shares and original issuances of shares in mutual fund companies, are now exempt from DST, further easing investment activity [2].

The act also provides additional incentives for retirement savings under the Personal Equity and Retirement Account framework. Employers contributing an amount equal to or greater than their employee’s contributions may claim an additional tax deduction equivalent to 50% of their actual contribution, subject to the allowable maximum of PhP100,000.00 or its foreign currency equivalent [2].

CMEPA marks a foundational step toward revitalizing the Philippine capital markets, which have lagged behind their ASEAN peers in liquidity and investor participation. The move is expected to spur hope for more initial public offerings (IPOs) and revitalize the Philippine Stock Exchange.

References:
[1] https://asia.nikkei.com/Economy/Trade-war/Trump-tariffs/Philippines-to-face-20-tariff-Trump-says-in-letter-to-Marcos
[2] https://www.lexology.com/library/detail.aspx?g=4a8f9ffb-fb11-449f-ae4c-53100e0159ab