l3TH CONGRESS OF THE REPUBLIC ) 
OF THE PHILIPPINES 
) 
First Regular Session 
) 
Ju1. -6 A1951 
/ 
S. BILL NO. 
Introduced by Senator Ralph G. Recto 
Explanatory Note 
The Family Income and Expendime Survey of 2000 revealed that families 
belonging to the lowest 20% income cannot live on their earnings alone and had to resort 
to borrowing in order to afford life’s basic necessities. The same is ttue for those in the 
second decile. 
However, 
compared with the 1997 survey, families from the middle and high-income earners posted 
sigmficant declines in their saving capability. The drop in savings ranged from 8.2% (6th 
decile) to 80.1% (4th decile). The richest 10% of the population were likewise adversely 
affected by the economic downturn as these families saved 11.2% less in 2000. 
Only those in the third to tenth deciles are able to save. 
At a t h e  of growing uncertainty brought about by political instability, peace and 
order problems, social unrest and a seemingly endless economic slump, the importance of 
the saying, “Save for the rainy day.” comes to reality. 
However, the Philippines’ savings rate of 24.7% relative to GDP, as compared to 
Thailand‘s 30.5%, Clha’s 38.7%, Malaysia’s 41.8% and Singapore’s 44.2% is one of the 
lowest among the ASEAN countries. 
Aside from the bleak over-all economic outlook, bolstered by a continuing decline 
in the interest rates of time and savings deposits, OUT country’s low savings rate may have 
been caused by the exodus of prospective bank depositors who pursued other means of 
earning higher interest for their hard-earned money. We are already familiar with a number 
of these get-rich-quick schemes which are offered by lending and investment companies 
providing interest rates of as high as 5-10 % monthly. 
Needless to say, such rates are 
more attractive compared with what banks currently offer. Unfortunately, some of these 
companies are masquerading as legal investment companies when their actual operations 
include pyramiding schemes. 
Like all pyramid schemes, there will come a time when the investing public lured by 
high retnrns on their investments end up being duped as the expected yield from their 
investments fail to be redeemed. 
Such cases have led to the discovery of a number of 
financial scams involving billions of pesos of investors’ money. 
But, we cannot blame 
ordinary depositors who respond to these luxurious offers as banks could only offer an 
average annual interest rate of 4.3% and 7.4% for time deposits with maturities ofless than 
360 days and more than 360 days, respectively. Time deposits on the other hand, earn only 
an average of 3.6% for the period December 2002. 
With this information on the savings behavior of families in the country based on 
their respective income level, the generally low savings ratio and the continuing deche in 
the interest rates being offered by our savings institutions, it is imperative that government 
should find alternative and effective means of encouraging its citizens to improve their 
saving capabilities. 
. 


In order to entice depositors to invest their hard-earned money in the form of bank 
deposits which are considered to be the safer mode of investment, and in order to spur 
economic activity, this bill seeks to lower the interest income tax on bank deposits from 
20% to 10%. 
This measure effectively increases the interest income of bank deposits by 50%. 
This would be a most welcome incentive not ody to depositors who are desperately trying 
to make ends meet, but also to banks which are faced with the challenges of financial 
liquidity within theit system. 
In view of the foregoing, immediate passage of dus bill is earnestly sought. 
MRC SB 2497interestincome.doc 


l3TH CONGRESS OF THE REPUBLIC ) 
OF THE PHILIPPINES 
) 
First Regular Session 
) 
SENATE 
1340 
S. BILL NO. 
‘04 JU. -6 
A1051 
/ 
Introduced by Senator Ralph G. Recto 
AN ACT 
REDUCING THE TAX O N  INTEREST INCOME, AMENDING FOR THE 
PURPOSE THE NATIONAL INTERNAL REVENUE CODE, AS AMENDED 
Be it enacted by the Senate and the House of Representatives of the Phdtppines in 
Congress assembled: 
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“SEC. 24. Income Tax Rates. - 
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(B) Rate of Tax on Certain Passive Income: - 
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(1) Interests, Royalties, Prizes, and Other Winnings. - A  h a l  tax at the rate 
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of TEN [twenty] percent (10Yo) [(20%)] is hereby imposed upon the amount of 
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interest from any currency bank deposit and yield or any other monetary benefit 
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from deposit substitutes and from trust funds and similar arrangements; 
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TWENTY PERCENT (20%) O N  royalties, except on books, as well as other 
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literary works and musical compositions, which shall be imposed a final tax of ten 
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percent (1On/o); 
TWENTY PERCENT (20%) 
O N  prizes (except prizes 
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amounting to Ten thousand pesos (“10,000) or less which shall be subject to tax 
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under Subsection (A) of Section 24; and TWENTY PERCENT (20%) O N  other 
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winnings (except Philippine Charity Sweepstakes and Lotto winning), derived from 
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sources within the Philippines: Provided, however, That interest income received by an 
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individual taxpayer (except a nonresident individual) from a depository bank under 
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the expanded foreign currency deposit system shall be subject to a fmal income tax 
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at the rate of seven and one-half percent (7 ‘/.Yo) of such interest income: Protiidtd, 
SECTION 1. Section 24 (B) (1) of the National Internal Revenue Code, as 
amended is hereby amended to read as follows: 


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fu&eq That interest income from long-term deposit or investment in the form of 
savings, common or individual trust funds, deposit substitutes, investment 
management accounts and other investments evidenced by certificates in such form 
prescribed by the Bangko Sentral ng Pilipinas (ESP) shall be exempt from the tax 
imposed under this Subsection: Provided, fmally, That should the holder of the 
certificate pre-terminate the deposit or investment before the fifth (5th) year, a fmal 
tax shall be imposed on the entire income and shall be deducted and withheld by 
the depository bank from the proceeds of the long-term deposit or investment 
certificate based on the remaining maturity thereof: 
Four (4) years to less than five (5) years - 5%; 
Three (3) years to less than four (4) years - 12% and 
Less than three (3) years - 20%. 
SEC. 2. 
ImpLemenhag h L e s  and Regufnhons. - Within ninety (90) days from the 
effectivityof this Act, the Department of Finance, the Bureau of Internal Revenue 
and the Banglro Sentral ng Pilipinas shall formulate the necessary rules and 
regulations to implement the provisions of this Act. 
The rules and regulations 
issued pursuant to this section shall take effect fifteen (15) days after its publication 
in a newspaper of general circulation. 
Sec. 3. Sqbarabibg Clazise. - If any provision of this Act is held unconstitutional or 
invalid, all other provisions not affected thereby shall remain valid. 
Sec. 4. Repealing CLuzse. -All laws, decrees, executive orders, rules and regulations or 
parts thereof, which are inconsistent with this Act, are hereby repealed, amended or 
modified accorhgly. 
Sec. 5. Eiffectzuig, - This Act shall take effect fifteen (15) days following its 
publication in the Official Gazette or in two (2) newspapers of general circulation. 
Approved,