THE government's proposal to raise the annual income tax exemption threshold could inject around P45 billion into household spending, China Banking Corp. (Chinabank) said on Tuesday.
In a commentary, the bank said increasing the tax-exempt income threshold to P350,000 from P250,000 would encourage higher consumer spending and lift economic growth by an estimated 0.12 percentage point, even as it will reduce government revenues by about P53 billion in 2027.
"The proposal is expected to boost household consumption by around P45 billion, providing a timely boost to domestic demand and lifting GDP (gross domestic product) growth," Chinabank said.
It added that the inflationary effect of the measure would likely remain limited at around 0.05 percentage point, as the average tax savings per taxpayer would amount to only about P15,000 annually, or roughly P1,250 a month.
President Ferdinand Marcos Jr. announced the planned tax relief during his fifth State of the Nation Address on Monday, saying his administration will pursue measures to ease the tax burden on the middle class while promoting economic growth and equity.
Based on the country's 5.7 million registered taxpayers as of 2024, Chinabank estimated that around 3.5 million, or 62.2 percent of all taxpayers, would benefit.
The bank illustrated the impact using an individual earning P500,000 in annual taxable income.
Under the current tax structure, the taxpayer will have to pay P42,500 in income tax each year. If the tax-free threshold is raised to P350,000 while tax rates remain unchanged, the annual tax bill would decline to P27,500, resulting in annual savings of P15,000, or about P1,250 every month.
While the proposal is expected to strengthen household purchasing power and support domestic consumption, Chinabank noted that it would also come with a fiscal cost.
The lender estimated that the higher tax exemption would reduce government revenues by around P53 billion in 2027 if implemented for the full year.
“While the near-term revenue loss could be partly offset by collections from the announced tax amnesty program, a more sustainable revenue source will still be needed over the medium term,” Chinabank said.
