Gov't bats for lower flat tax rate for deposits, securities

MANILA, Philippines -- More depositors and investors could be encouraged to park their money with the banks or let them grow in the financial system once a planned flat tax rate of 10 percent becomes a reality.

 

The proposal is part of the government's comprehensive tax reform program, composed of four packages which will be filed separately beginning later this month.

 

"We propose to harmonize all capital income taxes regardless of currency, maturity and type towards 10 percent," Finance Secretary Carlos Dominguez was quoted in a statement.

 

"This way, the poor pay less on the interest income and the rich pay more," he told the House Ways and Means committee last Tuesday.

 

Capital income taxes pertain to final levies charged on bank deposit earnings as well as on interest income from investments in bonds.

 

Under the present law, peso deposits are charged differently depending on their maturities, with those parked for less than three years being slapped a rate of 20 percent.

 

Money staying put for three to less than four years are taxed 12 percent, four to less than five years with five percent, while those for longer periods are tax-free.

 

Foreign currency deposits, meanwhile, have a fixed 7.5-percent rate, while interest from investing in bonds are levied 20 percent.

 

Dominguez said retail depositors with small amount of money do not even feel the benefits of saving in the bank.

 

"Small depositors are burdened with high tax rates because they save less and cannot keep their money in banks for a long time, while rich depositors, who park their money in banks because they do not have an immediate need for it, are not taxed," he said.

 

"Is that fair?" he asked.

 

A total of 51.86 trillion accounts had deposits worth P9.41 trillion as of the first quarter, central bank data showed. Of that, more than 90 percent were savings accounts.

 

Of the 46.91 trillion savings accounts, 32.14 million contain P5,000 and below. 

 

Separate data showed the government earned P23.31 billion from taxes on deposits and state securities as of June. They accounted for just nearly three percent of total.

 

"That is very positive to the ordinary citizen and encourage savings," central bank deputy governor Nestor Espenilla Jr. said in a text message.

 

"More savings expands the stable funding base of the banking system that supports more loans and investments," he added.