A 20% percent withholding tax on interest earned from savings as part of the recent implementation of Republic Act No. 12214, also known as the “Ease of Paying Taxes Act,” marks a significant shift in the country’s tax policy.
Finance Secretary Ralph Recto justifies this move as a step toward standardizing passive income taxation and anticipates it will generate over ₱25 billion through 2030. The revenue, he argues, will help reduce the fiscal deficit.
However, herein lies the irony: a tax policy that claims to provide access to capital and investment opportunities for ordinary Filipinos penalizes the ordinary Filipino for saving money.
Saving as Lifelines:
For millions of low- to middle-income Filipinos, savings accounts are not just financial instruments; they are lifelines. Whether to prepare for emergencies, pay for tuition, or plan for retirement, many rely on interest from savings as their only form of passive income. Imposing a 20% tax on this already meager interest, at a time when deposit rates hover between 1.5% and 2% annually, is not just discouraging, but also disempowering.
What’s worse, the tax is flat. It applies to everyone. This is a regressive tax policy where the poor are taxed at the same rate as the rich. The impact on ordinary savers is disproportionately harsh, while the wealthy, who often channel their funds into tax-free or preferentially taxed investment vehicles, such as stocks, bonds, and offshore accounts, remain largely unaffected. In effect, it appears that the government squeezes more out of small savers, while big capital remains unscathed.
For the sake of equity in taxation, rather than targeting small savers, more progressive tax reforms should focus on sectors with greater capacity to pay, such as high-net-worth individuals, large corporations with tax avoidance schemes, and illicit financial flows. The fiscal problem in the country is real, but its solution need not come at the expense of the most financially vulnerable majority.
Indeed, such a policy is politically tone-deaf. Amidst economic hardship, a 20% tax on savings is being implemented at a time of fluctuating inflation, stagnant wages, and economic uncertainty. Filipinos are already struggling with a high cost of living, and raising the effective tax burden, even on passive income, adds insult to injury. This policy penalizes ordinary Filipinos because they are made to pay more, while the wealthy, powerful elites and tax evaders are off the hook.
Conclusion:
In principle, tax reform should broaden the base, make the system more equitable, and promote economic participation. But taxing savings interest, a form of income relied on by those with the least, betrays that principle.
The bottom line? RA 12214 may be a step forward in tax administration, but this provision is a step backward in economic justice, for it asks the least from those with the most, and the most from those with the least.
Source: The Lobbyist
https://thelobbyist.biz/perspectives/article-details/prime%20insight/when-taxing-savings-at-20percent-hurts-the-saver-tone-deaf-tax-policy
