On 29 May 2025, President Ferdinand R. Marcos Jr. signed into law Republic Act 12214, otherwise known as the Capital Markets Efficiency Promotion Act (CMEPA). This landmark legislation is widely viewed as a decisive step toward invigorating the Philippine capital markets and making them more attractive to both local and foreign investors.

CMEPA aims to deepen the country’s financial markets, stimulate trading activity, and enhance investor participation through targeted tax reforms. These reforms are expected to bring the Philippines at par with regional peers and international standards. Despite the exercise of the President’s veto power over certain provisions, the core features of the law remain intact — delivering meaningful tax relief to promote long-term growth and liquidity in the market.

The most significant among these reforms is the long-awaited reduction of the stock transaction tax — from 0.6 percent to 0.1 percent of the gross selling price of listed shares. This single provision is expected to significantly reduce the cost of investing and trading on the Philippine Stock Exchange (PSE), thereby increasing liquidity and narrowing bid-ask spreads.

Additionally, CMEPA reduces the documentary stamp tax (DST) on the original issuance of shares from 1 percent to 0.75 percent of the par value. It also exempts from DST the issuance, redemption and secondary trading of unit investment trust funds (UITFs) and mutual funds. These tax incentives aim to encourage the development of more diverse and competitive financial products while improving the risk-return profile for long-term savers and asset managers.

In his veto message, President Marcos prudently struck down three provisions which, in his view, could have undermined tax policy coherence or the broader national interest.

First, he vetoed the removal of the tax exemption on interest income earned by nonresidents from foreign currency deposit units (FCDUs). The rationale: preserving this long-standing exemption maintains the country’s attractiveness to foreign investors, safeguards financial openness and supports foreign currency liquidity.

Second, the President rejected the imposition of DST solely on bettors in lotto and other number games conducted by the Philippine Charity Sweepstakes Office (PCSO). By retaining the current framework, where DST is an indirect tax that can be passed on, the law avoids placing an undue burden solely on bettors while preserving the integrity of tax collection.

Third, the president vetoed the removal of tax exemptions previously granted to the Philippine Guarantee Corp. (PHILGUARANTEE) under the Home Guaranty Corporation Act. These include exemptions from interest income tax, DST, and taxes on bond issuances. The president recognized that these exemptions are vital in enabling PHILGUARANTEE to fulfill its mandate of supporting socialized housing — one of the cornerstones of inclusive national development.

While these vetoes underscore the administration’s fiscal prudence, they do not detract from the overall thrust of CMEPA. On the contrary, they reflect a measured approach: promoting market efficiency while preserving essential fiscal incentives that serve the public good.

The law becomes effective on 1 July 2025, after its publication in the Official Gazette or in a newspaper of general circulation. The Bureau of Internal Revenue (BIR) is given 60 days from effectivity to issue the necessary revenue regulations to implement the law. Importantly, any tax exemption or preferential rate applicable to financial instruments issued prior to effectivity shall continue to apply for the remaining life of the instrument.

As the financial community awaits the implementing rules and regulations, market participants are urged to prepare for the transition and capitalize on the enhanced investment climate. The CMEPA represents more than just tax reform — it embodies a national commitment to building a more inclusive, dynamic and investor-friendly capital market ecosystem.