If you are sitting for the October 2026 CPALE, there is one tax law you cannot afford to skim: the Capital Markets Efficiency Promotion Act (CMEPA), Republic Act No. 12214, signed on May 29, 2025 and effective July 1, 2025.
CMEPA is exactly the kind of law the Board of Accountancy loves to test — recent, rate-changing, and full of "old number vs. new number" traps. Many printed reviewers still carry the pre-CMEPA rates, so this is precisely where unprepared candidates lose easy points. This guide breaks down every change that matters for the Taxation subject.
What Is CMEPA?
CMEPA amends the National Internal Revenue Code (NIRC) to simplify and equalize the taxation of passive income and capital market transactions. The headline idea: stop taxing similar investments at different rates, and lower the friction (and tax cost) of investing in Philippine securities.
For the exam, CMEPA touches four areas you must know cold:
- Final withholding tax on interest income
- The stock transaction tax (STT)
- Documentary stamp tax (DST) on the original issuance of shares
- Capital gains tax (CGT) on the sale of unlisted shares
1. Interest Income — Now a Uniform 20% Final Tax
This is CMEPA's most heavily tested change. Before CMEPA, interest income was taxed at different rates depending on the type of deposit. CMEPA scraps that and applies a single 20% final withholding tax to interest on essentially all currency bank deposits and deposit substitutes.
| Interest source | Before CMEPA | Under CMEPA (from July 1, 2025) |
|---|---|---|
| Peso bank deposit (short-term) | 20% | 20% (unchanged) |
| Foreign currency deposit (FCDU/EFCDS), resident | 15% | 20% |
| Long-term deposit/investment (5+ years), individual | Exempt | 20% |
| Deposit substitutes | 20% | 20% |
The two changes to memorize:
- Foreign currency deposits jumped from 15% to 20%. The old preferential 15% FCDU rate for residents is gone.
- The long-term deposit exemption is repealed. Previously, an individual's interest on a deposit or investment with a maturity of 5 years or more was exempt from income tax. Under CMEPA, that interest is now subject to the regular 20% final tax. The old graduated pre-termination schedule (5% / 12% / 20% depending on holding period) effectively disappears along with the exemption.
The Grandfathering Rule (a classic trap)
CMEPA does not retroactively re-tax old instruments. Any tax exemption or preferential rate on a financial instrument issued or transacted before July 1, 2025 continues at its original treatment for the remaining maturity.
Exam trap: If a problem says a 5-year time deposit was placed in 2023 (before CMEPA), the interest keeps its old exempt/preferential treatment until it matures. If the same deposit is placed on or after July 1, 2025, the interest is taxed at 20%. Read the placement date carefully.
2. Stock Transaction Tax — Cut from 0.6% to 0.1%
The percentage tax on the sale of listed shares through the local stock exchange (NIRC Sec. 127[A]) was reduced from six-tenths of one percent (0.6%) to one-tenth of one percent (0.1%) of the gross selling price. CMEPA also extends this 0.1% rate to sales of shares through a foreign stock exchange. The seller still shoulders this tax, and it remains a final percentage tax — the seller does not separately report the gain.
Exam trap — do not confuse two different transactions:
- Listed shares sold through the exchange → 0.1% STT on gross selling price (CMEPA rate).
- Unlisted shares sold directly (not through the exchange) → 15% capital gains tax on the net gain (see Section 4 below).
3. Documentary Stamp Tax on Original Issuance of Shares — 1% to 0.75%
CMEPA reduced the DST on the original issue of shares of stock (NIRC Sec. 174) from 1% to 0.75% (seventy-five percent of one percent) of the par value (or actual consideration for no-par shares).
In peso terms, the rate on original issuance drops from ₱2.00 to ₱1.50 for every ₱200 (or fraction) of par value.
CMEPA also exempts from DST the original issuance, redemption, or other disposition of shares/units in a mutual fund company, UITF, or unit investment trust fund — a deliberate nudge toward pooled investment products.
4. Capital Gains Tax on Unlisted Shares — Uniform 15%
The CGT on the sale, exchange, or other disposition of shares not traded through the stock exchange is now a uniform 15% on the net capital gain — applied the same way to shares of both domestic and foreign corporations. This removes the old distinction where shares of foreign corporations were treated differently.
A Trap CMEPA Did Not Create: the IPO Tax
You may see older reviewers reference an "IPO tax" (the percentage tax on shares sold or exchanged through an initial public offering under the old Sec. 127[B]).
That tax no longer exists — and CMEPA is not the reason. The IPO tax was repealed by Bayanihan II (RA 11494) back on September 15, 2020. If an exam item asks about the tax on a closely-held corporation's IPO, the correct answer is that it is no longer imposed. Do not attribute its repeal to CMEPA — CMEPA's contribution to Sec. 127 was the STT reduction, not the IPO tax.
Bonus: Enhanced PERA Incentive
CMEPA strengthened the Personal Equity and Retirement Account (PERA) regime by granting an additional deduction equal to 50% of the employer's actual PERA contributions made on behalf of qualified employees — on top of the existing 5% PERA tax credit for the contributor. This is a lighter point, but it has appeared in "which of the following is a CMEPA feature" item sets.
How CMEPA Fits With TRAIN, CREATE, and CREATE MORE
The Taxation exam loves "which law changed what." Slot CMEPA into your mental map:
| Provision | Governing law |
|---|---|
| Individual income tax, VAT threshold, estate & donor's tax (6%) | TRAIN (RA 10963) |
| 25% corporate income tax, 2% MCIT, incentive regimes (ITH, SCIT, EDR) | CREATE / CREATE MORE (RA 11534 / RA 12066) |
| 20% uniform interest FWT, 0.1% STT, 0.75% DST on shares, 15% CGT on unlisted shares | CMEPA (RA 12214) |
See our companion guides on the CREATE MORE Act and the Ease of Paying Taxes Act (EOPT) — together these three laws cover almost every "new tax law" question on the 2026 CPALE.
How to Study CMEPA for the CPALE
- Memorize the four headline numbers: 20% interest FWT (uniform), 0.1% STT, 0.75% DST on original issuance, 15% CGT on unlisted shares.
- Drill the date logic. The grandfathering rule (before vs. on/after July 1, 2025) is the single most testable trap.
- Separate "listed vs. unlisted" share sales — different taxes, different bases.
- Don't over-attribute. CMEPA did not touch the 6% real property CGT, the 10% dividend tax, or the IPO tax (already repealed in 2020).
Practice With Updated Questions
Most legacy reviewers were printed before CMEPA and still show the 15% FCDU rate and the long-term deposit exemption. On cpareview.ph, Taxation practice questions are updated to reflect CMEPA, and the AI tutor can walk you through why a deposit placed before July 2025 is taxed differently from one placed after. Start your free 7-day trial to review with current rates.
Key Takeaway
CMEPA is short but high-yield: a uniform 20% final tax on interest, a 0.1% stock transaction tax, a 0.75% DST on share issuance, and a uniform 15% CGT on unlisted shares, all effective July 1, 2025. Learn the numbers, master the grandfathering date rule, and don't credit CMEPA for the IPO tax it never repealed — and you'll bank the easy points the BOA hands out on brand-new legislation.
Sources
- Republic Act No. 12214 (CMEPA), full text — Official statute
- BIR — Capital Markets Efficiency Promotion Act (CMEPA) — Bureau of Internal Revenue resource page
- Grant Thornton Philippines — Key highlights of CMEPA
- PwC Philippines — CMEPA: A new era for investment taxation
Last updated: June 2026. Rates reflect RA 12214 (CMEPA), effective July 1, 2025, and its BIR implementing regulations. Verify any later BIR issuances before the exam.