DOF presents the refined proposal on bill simplifying passive income taxes

The Department of Finance (DOF) has presented its refined proposal on Package 4 of the Comprehensive Tax Reform Program (CTRP)—a measure recalibrated by Finance Secretary Ralph Recto during his first week in office—to the Senate Committee on Ways and Means on February 12, 2024.

A priority measure of the Marcos, Jr. administration, Package 4 seeks to encourage growth in key financial markets by simplifying the tax structure on passive income, and on certain instruments and other financial products.

It was approved on the third and final reading by the House of Representatives on November 14, 2022 and is currently being taken up in the Senate Committee on Ways and Means.

Assistant Secretary Karlo S. Adriano of the DOF’s Fiscal Policy and Monitoring Group (FPMG) presented to the Senate the salient features of the refined proposal, which aims to maintain the structure of some products and instruments while deferring the implementation of certain provisions by 2028 or when the government will have been in a better fiscal position.

Under Package 4, the interest income tax will be harmonized at 20%, while royalties will be maintained according to the existing tax code until 2027, subsequently harmonized and decreased to 15% in 2028.

Similarly, 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 0.6 % 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, while those of life insurance policies will also see no adjustments.

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 on Philippine Charity Sweepstakes Office