THE proposed Capital Market Development Act (CMDA), which seeks to establish a new private retirement and pension system, has secured another approval from a House of Representatives committee.
House Ways and Means Committee Chairman Joey Sarte Salceda moved to approve last Monday the tax provisions of the unnumbered substitute bill to House Bill 8938 or the Capital Market Development Act (CMDA).
The bill is expected to reach the plenary for debates when session resumes on May 17.
Despite approving without amendments, Salceda said his committee will work with the House Committee on Banks and Financial Intermediaries and the House Committee on Rules. Likewise, he said they would also talk to the chairman of the Capital Market Development Council to ensure that the bill is passed by the House “in a manner that maximizes benefits to workers without burdening businesses too heavily.”
The bill proposes the establishment of an employee pension and retirement income (EPRI) account from the proposed private retirement and pension system that is fully-funded and portable. The EPRI account shall be a permanent account until retirement, owned, maintained and managed by the employee, regardless of changes or transfer in employment. As a private pension system, the EPRI owner shall make all investment decisions pertaining to his EPRI assets.
The EPRI shall be compulsory to cover all employees and employers in the private sector; self-employed and professionals may opt for voluntary coverage.
According to Salceda, they will still have to determine the appropriate rates of contribution, given industry and labor concerns.
Under the current version, employers will pay 4 percent of a worker’s salary; the worker 1 percent of his or her salary, to the pension plan. Micro, small, and medium enterprises (MSMEs) will only pay 2 percent of a worker’s salary; very small businesses with under three workers will be exempted.
“We are looking for the ‘Goldilocks spot’ on contribution rates. I am heavily considering the fact that businesses are still struggling with the COVID-19 pandemic. At the same time, current private pension plans are extremely inadequate for decent old age, and if we don’t do this reform soon, young workers won’t have any good retirement plan to look forward to,” Salceda said.
The measure also provides tax exemptions measures. Under the bill employer’s contribution made to the EPRI shall be allowed as a deductible expense of the employer. Counterpart employee contribution shall be subject to the necessary income tax.
Also it said all income of whatever nature earned by the EPRI, including interest and gains earned from the placements or investment of the EPRI assets, shall be exempt from all taxes. In case of transactions subject to the documentary stamp tax (DST), the DST shall be borne by the other party who is not exempt.
It added that all benefits and distribution received by the employee at the time of vesting or retirement shall be exempt from all taxes.
The bill also introduced the creation of a Capital Market Development Council (CMDC).
House Committee on Banks and Financial Intermediaries Chairman Rep. Junie E. Cua said the inclusion of the CMDC would institutionalize and capacitate the council which now only exists under a memorandum of agreement between the government and the private sector.
Moreover, Cua, principal author of the bill, said he filed the bill to provide retirement and pension system that is fully-funded, portable, more actuarially fair and stable that will enhance the current pension, at the same time, promoting and encouraging national savings and prudential investments on the part of employees.
He added he also filed the bill as the current private pension system has not developed.
“It has its own problems. Foremost of which, is the structure of the law and its implementing regulations,” Cua said. “Republic Act 7641 or the Retirement Pay Law of 1993, doesn’t require pensions to be prefunded; hence, pensions are paid out of pocket rather than built-up over the duration of employment, thus, no pool of investible assets is created.”