Financial Services Tax Reform Bill, Passive Income Gets Final House Green Light

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MANILA, Philippines — The House of Representatives on Monday approved in its third and final reading a bill to reform the taxation of passive income, financial services and transactions.

A total of 258 lawmakers voted in favor of Bill 4339, which amends and repeals several sections of the National Tax Code of 1997. Three lawmakers voted against approving the bill and none abstained. .

The proposed measure aims “to simplify the taxation of the financial sector… to make tax compliance easier and fairer, and to stimulate the tax effort of the government”.

Among the main provisions of HB No. 4339 are the following:

  • Reduce the number of bases and rates applicable to passive income, financial intermediaries and financial transactions from 74 to 52
  • Gradually reduce tax rates on royalties and interest from 20% to 15% from 2023 to 2027
  • Impose a flat tax rate of 15% on interest income, royalties, dividends and capital gains on the sale of non-exchange-traded shares
  • Impose a flat tax rate of 5% on the gross receipts of income from banks, quasi-banks and other non-bank financial intermediaries
  • Impose a harmonized tax of 2% on premiums for provident insurance, life insurance and on the products of health maintenance organizations
  • Repealing documentary stamp duty on certificates of profits or interest on property or capitalization, bank cheques, drafts, certificates of deposit not bearing interest, and other securities, bills of exchange or drafts, the right to stamp on proxies for voting all elections, powers of attorney and certificates
  • Repeal of the exemption of foreign currency deposits from tax on interest income
  • Removal of Excise Tax Exemption for Pickup Trucks Introduced Under Republic Act No. 10963 or the Acceleration and Inclusion (TRAIN) Tax Reform Act
  • Adoption of tax administration provisions initially proposed under previous tax packages of the overall tax reform program

Gabriela’s representative, Arlene Brosas, who was among those opposing the bill, said that while her party list recognizes the bill’s intention to simplify taxation, she pointed out that it could result in unnecessary and massive loss of revenue.

“In times of severe crisis and inflation, we cut taxes for the rich instead of easing the burden of ordinary citizens by removing VAT,” Brosas said in Filipino.

According to her, the bill assumes that reducing and simplifying tax rates and bases will deepen the country’s capital market and push more Filipinos to put their money in bank deposits, pre-needs insurance, stocks and other passive income.

“In reality, the big players in the financial markets will be the big winners from this measure, not the small percentage of the typical Filipino middle class who have savings or have insurance,” she added.

Besides HB #4339, Brosas and lawmakers from the Makabayan bloc also voted against approving the bill to impose a 12% VAT on digital services such as Netflix and Spotify by subscription, and the tax of excise duty on single-use plastics. .

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