DOF engages finance sector to further refine proposed bill on simplifying passive income tax and other financial instruments

The Department of Finance (DOF) engaged finance sector stakeholders in a briefing on March 1, 2024 on the proposed Package 4 of the Comprehensive Tax Reform Program (CTRP) that will simplify the tax structure on passive income and certain instruments and other financial products.

A priority measure of the Marcos, Jr. administration, Package 4 of the CTRP is aimed at making 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.

Under the guidance of Finance Secretary Ralph G. 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% in 2024, while royalties will be maintained according to the existing tax code until 2027, subsequently harmonized and decreased to 15% in 2028.

Accordingly, the dividend income tax will remain unchanged until 2027, with a proposed harmonization of 10% in 2028.

On the other hand, the stock transaction tax will gradually be reduced annually by 0.1%, from 0.5% to 0.1% 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% VAT imposition on HMO, pre-need, and pension plans, a 2% 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.

On the other hand, rates on policies of insurance upon property, fidelity bonds, and other insurance policies will gradually be decreased annually by 1%, from 12.5% to 7.5% in 2028.

Furthermore, taxes