Philippines Proposes Raising Tax-Free Annual Income Threshold to P350K

House Speaker Faustino “Bojie” Dy III of Isabela and Majority Leader Sandro Marcos of Ilocos Norte on Wednesday filed a bill increasing the tax-free annual income ceiling to P350,000 from the current P250,000. The House leaders made the proposal under their House Bill 10345 in response to the call of President Ferdinand Marcos, Jr. to pass such tax reform measure during his fifth State of the Nation Address (SONA) last Monday, July 27. “Speaker Dy has made sure the House responds with a bill rather than applause alone. Raising the tax-free ceiling to P350,000 gives workers more room for food, tuition, medicine and the bills that do not wait,” Sandro Marcos said in a statement. House Bill 10345 amends Section 24 of the National Internal Revenue Code by restructuring the graduated income tax rates imposed on Filipino citizens and resident aliens. Since 2018, individuals with annual taxable income not exceeding P250,000 are exempt from paying income tax under the existing Tax Reform for Acceleration and Inclusion law. Aside from increasing the tax-free annual income ceiling to P350,000, House Bill 10345 also sets a 15 percent rate for taxable income above P350,000 but not exceeding P400,000 an retains the succeeding marginal rates of 20 percent, 25 percent, 30 percent, and 35 percent. For income above P400,000, the measure retains the existing base taxes and graduated rates applying to the P400,000, P800,000, P2 million and P8 million thresholds. Married individuals will continue to calculate their respective income taxes separately, while income that cannot be exclusively attributed to either spouse will be divided equally between them. Minimum wage earners will remain exempt from income tax on their taxable income, holiday pay, overtime pay, night shift differential pay and hazard pay. Qualified self-employed individuals and professionals may also choose the eight percent tax on gross sales, receipts and non-operating income exceeding the proposed P350,000 threshold, in place of graduated income tax and percentage tax. Mixed-income earners, on the other hand, will remain subject to the graduated rates on compensation income and the applicable graduated or optional eight percent tax on income from business or professional practice. “The President’s SONA gave us a clear standard: tax policy must remain responsible while recognizing how much the cost of living has changed, and Speaker Bojie Dy shares that practical approach,” Congressman Marcos said. Corporate income tax Also on Wednesday, Dy and Marcos also filed House Bill 10346 which would abolish payment of minimum corporate income tax (MICT) by 2027. The measure amends Section 27 of the National Internal Revenue Code. Under an existing law, a domestic corporation generally pays an MCIT equivalent to two percent of gross income beginning with its fourth taxable year whenever that amount exceeds the regular corporate income tax. HB 10346 retains the current 2 percent MCIT only until December 31, 2026, providing businesses and tax authorities with a transition period before its abolition. Beginning January 1, 2027, corporations covered by the measure will instead pay the regular corporate income tax computed from taxable income under Section 27(A). The regular corporate income tax is generally 25 percent, while qualified domestic corporations with net taxable income not exceeding P5 million and total assets not exceeding P100 million are subject to a 20 percent rate. The bill allows excess MCIT previously paid over the regular income tax to be carried forward and credited against the regular corporate income tax for the three immediately succeeding taxable years. “The President’s SONA asked Congress to give small businesses practical relief, and Speaker Bojie Dy has kept the House focused on measures that reach the shop floor and the neighborhood store,” Congressman Marcos added. —VAL, GMA News