Bill reforming taxes on financial services, passive income gets final House nod
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MANILA, Philippines – The House of Representatives on Monday approved on third and final reading a bill seeking to reform the taxation of passive income, financial services, and transactions.
A total of 258 lawmakers voted in favor of House Bill No. 4339, which amends and repeals several sections of the National Internal Revenue Code of 1997. Three lawmakers voted against the bill’s approval and zero abstained.
The proposed measure aims “to simplify the taxation of the financial sector…to make tax compliance easier and more equitable, and to boost the government’s tax effort.”
Among the key provisions of HB No. 4339 are the following:
- Reducing the number of tax bases and rates applicable to passive income, financial intermediaries, and financial transactions from 74 to 52
- Gradually reducing tax rates on royalties and interests from 20 percent to 15 percent from 2023 to 2027
- Imposing a single tax rate of 15 percent on interest income, royalties, dividends, and capital gains on the sale of shares of stock not traded in the stock exchange
- Imposing a single tax rate of 5 percent gross receipt tax on the income of banks, quasi-banks, and other non-bank financial intermediaries
- Imposing a harmonized 2 percent tax on premiums of pre-need, life insurance, and products of health maintenance organizations
- Repealing the documentary stamp tax on the certificate of profits or interest of property or accumulations, bank checks, drafts, certificates of deposit not bearing interest, and other instruments, bills of exchange or drafts, stamp tax on proxies for voting of any elections, powers of Attorney, and certificates
- Repealing exemption of foreign currency deposit from interest income tax
- Removing excise tax exemption of pick-up trucks introduced under Republic Act No. 10963, or the Tax Reform for Acceleration and Inclusion (TRAIN) law
- Adopting tax administration provisions originally proposed under the previous tax packages of the Comprehensive Tax Reform Program
Gabriela Rep. Arlene Brosas, who was among those opposing the bill, said that, while her partylist acknowledges the bill’s intent to simplify taxation, she pointed out that this might result in unnecessary and massive revenue losses.
“At a time of severe crisis and inflation, we are reducing the tax of the rich instead of relieving the burden of ordinary citizens by removing VAT,” Brosas said in Filipino.
According to her, the bill assumes that lowering 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-need insurance, stocks, and other passive income.
“In reality, big players in the financial markets will emerge as the biggest winners under this measure, not the small percentage of the typical Filipino middle class who have savings or who have insurance,” she added.
Aside from HB No. 4339, Brosas and lawmakers from the Makabayan bloc also gave a negative vote for the approval of the bill to impose 12 percent VAT on digital services like subscription-based Netflix and Spotify, and the excise tax on single-use plastics.
