PRESIDENT Ferdinand Marcos Jr.'s proposal to raise the annual income tax exemption threshold will provide relief to Filipinos dealing with high prices but at the same time pressure the government’s finances, analysts and economists said.
In one of the highlights of his fifth State of the Nation Address (SONA) on Monday, Marcos urged Congress to pass a package of tax reforms that includes increasing the income tax exemption threshold from the current P250,000 to P350,000 annually.
Former Finance Undersecretary Cielo Magno welcomed the proposal and said legislators should also consider raising the limit to P500,000 and indexing the “exemption to inflation so that it will be automatically adjusted every year.”
“This is a good relief for our taxpayers,” she told The Manila Times.
UnionBank chief economist Ruben Carlo Asuncion also said the proposed increase would be beneficial to middle-income earners, but cautioned that the government would have to carefully manage the impact on revenues.
"The proposed increase in the income tax exemption threshold is a welcome development for middle-income earners as it raises disposable income and supports consumer spending," he said.
He noted, however, that the proposal's broader impact would depend on how the government addresses the resulting reduction in tax collections.
"While this could provide a boost to economic activity, it will be important to assess the corresponding impact on government revenues and identify measures that will preserve fiscal sustainability,” Asuncion said.
Legislative support crucial
Reyes Tacandong & Co. senior adviser Jonathan Ravelas said the success of the income tax perk and other initiatives mentioned in the SONA, including the removal of system loss charges shouldered by electricity consumers and a corporate income tax exemption for small businesses, would ultimately depend on legislative support.
“The tax amendments suggested, [the change to the] Epira (Electric Power Industry Reform Act), exemption of SMEs (small and medium enterprises) from tax ... [will be] a test that he is not lame duck,” he said.
Beyond the tax proposals, Ravelas also welcomed Marcos' renewed emphasis on combating corruption, particularly the review of flood control projects and the recovery of allegedly misused public funds.
He said the anti-corruption campaign would send a strong signal that the government is committed to improving governance, but warned that investigations should not delay productive public spending needed to sustain economic growth.
“Government must be able to quickly remove questionable projects while accelerating transparent, high-impact investments in infrastructure, energy, food security, logistics, and digital connectivity,” Ravelas said.
The goal is “not to spend more or less, but to spend smarter, faster, and cleaner,” he added.
“If governance reforms can be matched by efficient project implementation, the economy will benefit through stronger growth, more jobs, and greater public trust.”
Eduardo Francisco, president of BDO Capital & Investment Corp., also said that raising the tax exemption threshold would provide relief to taxpayers but at the same time create fiscal challenges.
"The P350,000 will help people but give the Department of Finance a problem as they will need a new revenue source," he said.
Gov’t should take the lead
Francisco added that while the administration's continued focus on infrastructure development was encouraging, investors will need to see projects moving forward.
"[The] focus on infra and development is good but [we] need to see actual projects. The current budget is focused on education and health care and less on roads and bridges, so we need to see actual plans," he said.
Francisco also said that Marcos’ announcements would not have an immediate impact on equities, saying: "They might attract more investors, but those won't be through the stock market.”
Manny Ocampo, president and chief operating officer of Investment and Capital Corp. of the Philippines, likewise underscored the importance of infrastructure spending.
"The administration should really take the lead on infrastructure development — then the private sector will follow," he said.
"They (the government) just have to put up the safeguards to limit corruption. First thing here is that the government should only deal with reputable contractors that have the track record."
As for the personal income tax exemption, it “should benefit the lower wage income earners and [be] positive again for livelihood," Ocampo said.
Federation of Philippine Industries Chairman Elizabeth Lee, meanwhile, said the SONA provided a strong blueprint for accountability but stressed that success would depend on concrete execution.
She commended Marcos for directly addressing the flood control scandal, saying this demonstrates his commitment to accountability, the success of which lies wholly with the government.
"Its success will be decisive in boosting investor confidence, improving national credit ratings and restoring trust in public institutions,” Lee said.
The directive to lower electricity costs, meanwhile, was said to be critical for making Philippine manufacturing competitive with Asean neighbors.
Targeted assistance for small businesses and vulnerable sectors is also essential, she said, especially with ongoing inflationary pressures.
"This will not come cheap, but the cost of inaction would be far greater. By cushioning enterprises against rising costs, we can soften the blow of weakening demand while preserving employment and production capacity," Lee said.
Nuclear, hydrogen and other energy initiatives will help the Philippines achieve long-term energy security and build industrial resilience, she continued.
“Ultimately, this SONA laid down benchmarks for accountability and competitiveness. The priority now shifts to swift execution — lowering operational costs, cutting red tape, and ensuring reforms translate directly to the factory floor,” Lee said.
