PRESIDENT Ferdinand R. Marcos Jr. pushed for a sweeping tax relief package, setting up a balancing act to cushion small businesses and the middle class from the lingering effects of the Middle East crisis while narrowing its fiscal deficit.
‘We have not forgotten Filipino workers, especially those in the middle class, as well as small businesses. We recognize that they, too, are bearing the burden of this crisis,’ Marcos said in his fifth State of the Nation Address on Monday.
Marcos placed tax reform at the center of his economic agenda for the administration’s final two years, saying that the government would pursue policies that balance economic growth and revenue generation with a fairer distribution of the tax burden.
‘To ensure the continued progress of the middle class amidst the lingering effects of the crisis, we will pursue tax relief measures that promote growth, generate revenue, and advance equity toward socio-economic sustainability,’ Marcos said.
The President proposed three major measures: a higher personal income-tax exemption, the removal of corporate income tax for qualified small businesses, and a tax amnesty covering several types of unpaid national taxes and their corresponding penalties.
Under the proposed reform, individuals earning no more than P350,000 annually would be exempted from personal income tax. This would raise the existing tax-free threshold of P250,000 by P100,000.
‘We will expand the income tax exemption threshold. More workers will be exempt from paying income taxes, including those earning up to P350,000 annually, Marcos said in the vernacular.
The current graduated income-tax schedule imposes no tax on annual taxable income of up to P250,000. Income above P250,000 but not exceeding P400,000 is taxed at 15 percent of the excess over P250,000, according to the Bureau of Internal Revenue.
Under the existing schedule, a person with taxable income of exactly P350,000 would owe P15,000 in annual income tax.
Raising the exemption to P350,000 could therefore provide that taxpayer with relief of up to P15,000, although the final benefit would depend on the tax brackets and computation rules eventually approved by Congress.
Marcos also proposed a corresponding reduction in the tax rates imposed on workers earning above the new exemption threshold. He did not specify the proposed rates during the portion of his address devoted to the measure.
The President characterized the reform as a way to allow working Filipinos to keep a larger share of the income they earned.
‘As a concrete measure to protect them and allow them to better enjoy the fruits of their hard-earned income, I call on Congress to pass legislation that will provide some relief from our tax burden,’ Marcos said.
The proposal would require Congress to amend the National Internal Revenue Code because the President cannot change personal income-tax brackets through an executive order alone.
For his part, House Majority Leader Ferdinand Alexander ‘Sandro’ A. Marcos expressed support for the proposed tax reform measures but stressed that its provisions must be carefully evaluated to ensure that the government can afford the planned tax relief measures.
Marcos said revisiting the country’s tax system would be prudent given the current economic climate.
However, he noted that Congress must first consult the Department of Finance (DOF) and the government’s economic managers before determining whether the proposed reforms are fiscally sustainable.
‘Well, I think given the economic climate we live in, it would be the prudent thing to do, but we have to seek the guidance and the wisdom of the DOF and the other economic managers as to whether or not that’s actually economically feasible,’ Marcos said.
‘Nonetheless, I will await to see what those versions of the bill are,’ he added.
Several bills seeking to amend the country’s income tax system have been filed in Congress. Among them are proposals to increase the annual tax-exempt threshold, revise the graduated tax brackets, and raise the ceiling for tax-exempt 13th-month pay and other employee benefits.
The TRAIN Law, or Republic Act No. 10963, took effect on January 1, 2018. It exempted individuals earning an annual taxable income of P250,000 or less and reduced personal income tax rates for many workers. To compensate for the resulting revenue losses, the law imposed or increased taxes on petroleum products, automobiles, sweetened beverages and other goods.
‘Exempt small businesses from corporate income tax’
The President also asked lawmakers to eliminate corporate income tax for qualified small enterprises. ‘Small businesses will no longer be subject to corporate income tax,’ he said.
Under Republic Act No. 12066, or the Create More Act, most domestic corporations are generally subject to a 25-percent income-tax rate.
Qualified corporations with net taxable income not exceeding P5 million and total assets not exceeding P100 million, excluding the land on which their office, plant or equipment is located, currently enjoy a preferential rate of 20 percent.
Tax amnesty
The third component of the President’s proposal is a tax amnesty for taxpayers with outstanding liabilities involving estate tax, income tax, donor’s tax and value-added tax.
‘To give taxpayers greater peace of mind, we will grant tax amnesty for unpaid taxes, including estate tax, income tax, donor’s tax, and value-added tax. The amnesty will also cover the penalties and surcharges associated with these unpaid tax obligations,’ Marcos said.
The amnesty could allow individuals and businesses to settle unpaid taxes under simplified terms while receiving relief from accumulated surcharges, interest or penalties.
The government’s previous estate-tax amnesty covered the estates of people who died on or before May 31, 2022. Its availment period ended in June 2025.
‘Progress bill’
Finance Secretary Frederick D. Go said earlier that a tax package, dubbed ‘Progress Bill,’ is being crafted to adjust personal income tax and provide tax breaks for small businesses.
The proposed bill is a combination of tax breaks, revenue-reducing measures and revenue-enhancing measures, Go said.
On the revenue-generating component, Go said this could take the form of ‘sin,’ health or environmental taxes.
The tax package comes at a time when the government’s fiscal deficit target was adjusted, accommodating a wider gap through the end of Marcos Jr.’s administration or until 2028.
The budget hole is projected to stretch until 2028-P1.658 trillion in 2026, P1.695 trillion in 2027 and P1.722 trillion in 2028-before contracting in 2029 and 2030.
Despite this, the government projects revenue collections to continue rising. This year, the revenue target is set at P4.807 trillion and eventually hit the P6-trillion mark in 2030.