IN his fifth State of the Nation Address on July 27, President Ferdinand Marcos Jr. proposed raising the annual personal income tax exemption threshold from P250,000 to P350,000. For workers with taxable income just below the proposed cutoff, the change would wipe out their income tax bill.
House Speaker Faustino Dy and Majority Leader Sandro Marcos filed House Bill 10345 to amend the Tax Code. The bill’s explanatory note says the measure would ease the burden on low- and middle-income earners and help households cope with rising prices.
Who would benefit?
Workers with annual taxable income above P250,000 and up to P350,000 would no longer owe personal income tax. Those already at or below P250,000 would see no change in their income tax liability.
At P350,000 in annual taxable income, the proposed change would save a worker about P15,000 a year, or the equivalent of P1,250 a month. Those earning above the new threshold would also benefit, with their savings depending on the final rate schedule.
How would the government offset the revenue loss?
The Department of Finance’s proposed Promoting Growth, Revenue and Equity toward Socio-Economic Sustainability Bill pairs targeted tax relief with new or higher levies. The department has proposed higher excise taxes on sweetened beverages, alcohol, vape products and other tobacco-related products. It is also looking at changes to taxes on certain plastic products and other nonessential goods.
The package would raise excise taxes on vehicles valued above P8 million and extend excise taxes to private aircraft and vessels. These measures would shift some of the tax burden from wages to luxury spending.
On the corporate side, the package would exempt micro and small enterprises from the minimum corporate income tax and apply a 15-percent global minimum tax to covered multinational enterprises.
Keeping tax relief in step with inflation
A higher threshold would give workers immediate relief, but inflation would gradually erode its value. Workers who get a raise that merely keeps pace with rising prices could still end up paying a larger share of their income in tax if the brackets stay fixed.
Congress should consider adjusting the threshold and tax brackets automatically for inflation. That would help preserve the value of the relief and spare workers from waiting years for another amendment to the Tax Code. Lawmakers would also have to weigh the cost of those adjustments against the revenue needed to fund public services.
House Bill 10345 was referred to the House Committee on Ways and Means on July 29. As Congress considers the measure, it has two decisions to make: How much relief workers should get now, and how to keep that relief from losing value as prices rise.
Mark S. Gorriceta is the chairman and managing partner of the law firm Gorriceta Africa Cauton & Saavedra (www.gorricetalaw.com).
Gerard Ceasar S. Baguio is a managing associate at Gorriceta Africa Cauton and Saavedra, who specializes in taxation, litigation and real estate.
The firm is a member of the Financial Executives Institute of the Philippines (Finex).
