President Ferdinand Marcos Jr. has enacted the Capital Markets Efficiency Promotion Act (CMEPA), which became law on May 29, 2025. One of the key provisions of this legislation is the removal of the tax exemption on interest income from long-term time deposits (TD5), specifically those with maturities of five years or more.

The enactment of the CMEPA aims to enhance capital market efficiency by lowering transaction costs and streamlining taxation processes.

However, the thrift banking sector had expressed significant concerns prior to the law's enactment, advocating for the preservation of the tax-free status of long-term deposits due to its potential negative impact on middle-income savers and retirees.

A specific aspect of the CMEPA introduces a final tax of 20 percent on various interest incomes, including those from money market placements, deposit substitutes, trust funds, and long-term deposits.

This change means that interest income from long-term deposits, traditionally exempt from taxes, will now be subject to this tax.

According to the thrift banking sector, long-term time deposits primarily come from middle-income savers and retirees, who often rely on this income to supplement pensions and cover essential expenses such as medical needs.

The industry argues that the new taxation could disincentivize individuals from saving for the long term and may negatively affect financial market stability.

Industry representatives have estimated that the additional tax revenue generated from taxing long-term deposits would amount to approximately P6 billion annually.

This figure is relatively minor in comparison to the government's total revenue collections, which reached P931 billion in the first quarter of 2025, reflecting a 13.55 percent increase from the previous year.

Moreover, the sector warns that taxing TD5s could alter the dynamics of savings behavior, leading savers to opt for shorter-term investments or alternatives to deposit accounts, which could subsequently diminish liquidity in the financial system.

Long-term deposits are critical for banks, providing them with stable funding sources that are essential for financing various loans, including housing and auto loans.

The Office of the President clarified that President Marcos utilized his line-veto powers sparingly, limiting them to certain specifics within the CMEPA.

These included eliminating tax exemptions for non-residents’ earnings from Foreign Currency Deposit Units, introducing a documentary stamp tax on prize winnings from authorized lottery games, and revoking tax exemptions granted to the Philippine Guarantee Corp. For any adjustments to the tax-exempt status of time deposits, modifications must be incorporated into the National Internal Revenue Code.

The Philippines hosts around 2,500 branches of thrift banks, which play a significant role in the country's banking landscape.