The House of Representatives has approved on third reading a bill that seeks to simplify the taxation of passive income, and financial intermediaries and transactions.

"Passing this reform will enable the government to fund priority programs, create more and better jobs and support the inclusive and sustainable growth of the economy in the long term," Finance Secretary Benjamin Diokno said.

House Bill 4339 generally mirrors Package 4 of the Department of Finance's Comprehensive Tax Reform Program.

The Finance secretary also said the approved version of the bill reduced the number of combinations of tax bases and rates applicable to passive income and financial intermediaries from 83 to 58.

"This will make our tax system more regionally competitive and the rates comparable to our Southeast Asian neighbors," Diokno said.

Final tax

The bill imposes a final tax of 20 percent on interest income earned from currency bank deposits, deposit substitutes, trust funds or similar arrangements, he added.

Furthermore, Diokno said that certain passive income such as royalties, dividends and capital gains on the sale of shares of stock not traded in the stock exchange will be subjected to a uniform rate of 15 percent.

Some exemptions and preferential tax treatment will also be removed to broaden the tax base.

Banks, quasi-banks, and other non-bank financial intermediaries will be subjected to a single gross receipts tax rate of 5 percent.

The distinction between lending and non-lending income and the maturity of the instrument will be removed.

"All types of income, with the exemption of dividends, equity shares and net income of subsidiaries, will be taxed at 5 percent," Diokno added.

Pre-need, pension, life insurance and health maintenance organizations will be subjected to a uniform tax rate of 2 percent of premiums.