House bill eyes higher tax exemption for Filipino workers amid rising prices

By Kenneth Christiane L. Basilio, Reporter

A BILL that seeks to raise the income tax exemption for workers has been filed at the House of Representatives, a move meant to ease the burden of rising living costs and make the tax system more “equitable.”

Filed on Nov. 17, House Bill No. 6036 proposes to amend the Tax Code by lifting the personal exemption ceiling to incomes below P40,000 a month, or P480,000 a year, from P250,000.

“It aims to restore the real value of the exemption, provide meaningful relief to working individuals and help ensure that the tax system remains equitable and responsive to current economic conditions,” Party-list Rep. Iris Marie D. Montes said in the bill’s explanatory note.

The Philippines raised the exemption to P250,000 under a 2017 tax reform law, which at the time covered wage earners making about P20,000 a month.

“While this adjustment was intended to align tax rates with income levels at the time, the real value of the exemption has since been eroded by inflation,” Ms. Montes said.

“The rising cost of living, driven by increases in food, fuel, utilities and transportation expenses has significantly reduced the purchasing power of ordinary Filipino workers,” she added.

She said many low- and middle-income workers are losing a significant share of their take-home pay to taxes.

“Raising the exemption threshold will allow workers to retain more of their income, stimulate household consumption and support inclusive economic growth,” she added.

Under the bill, those earning more than P480,000 but not over P650,000 annually will be taxed 15% on income above the lower threshold. Workers earning as much as P1.3 million a year will face a levy of P37,500 plus 25% of the excess over P650,000.

People with yearly incomes of as much as P3.2 million will be taxed P167,000 plus 25% of the amount above P1.3 million. Those earning as much as P12.8 million a year will pay P642,500 plus 30% of income exceeding P3.2 million.

Workers making more than P12.8 million will be taxed P3.5 million plus 35% of income exceeding that threshold.

“Increasing the tax exemption will reduce the government’s tax base,” Reinielle Matt M. Erece, an economist at Oikonomia Advisory & Research, Inc., said in a Viber message. He said the government might raise other taxes to offset lost revenue, which could limit public programs and projects.

“The economic impact ultimately depends on how the measure is designed,” John Paolo R. Rivera, a senior research fellow at the Philippine Institute for Development Studies, said in a Viber message.

“If it is well-targeted and paired with reforms that improve collection efficiency and broaden the tax base, it can lift purchasing power without endangering fiscal sustainability,” he added.

He said the measure could boost household spending and support economic growth. But Mr. Erece cautioned it could also stoke inflation if demand grows faster than supply.

“Higher spending power can only do so much if the supply side is not addressed,” he said. “Strong demand without matching supply may result in higher prices.”