During his fifth State of the Nation Address (SONA) on 27 July 2026, President Ferdinand Marcos Jr. proposed increasing the annual personal income tax exemption threshold from ₱250,000 to ₱350,000. The proposal was touted as a form of tax relief intended to help Filipino workers cope with rising living costs and allow them to retain a larger portion of their earnings.
The Department of Finance (DOF) likewise endorsed the proposal through the Progress Bill, emphasizing that more than six million Filipino workers stand to benefit from the increase in the personal income tax exemption threshold. According to the DOF, individuals earning ₱350,000 could receive as much as ₱15,000 in additional take-home pay each year. While the adjustment is estimated to result in approximately ₱70 billion in foregone annual revenue, the House Ways and Means Committee argued that the measure will generate greater economic benefits in the long run due to the higher spending power of the affected individuals.
The proposal was subsequently translated into legislation through House Bill No. 10345, filed by House Speaker Faustino "Bojie" Dy III and House Majority Leader Ferdinand Alexander "Sandro" Marcos. The House Ways and Means Committee approved the bill on 10 August 2026. The measure will next proceed to the filing of the committee report and its inclusion in the Order of Business for Second Reading.
On the Senate side, several similar measures have been filed. Senators Francis “Kiko” Pangilinan and Vicente “Tito” Sotto III both proposed increasing the annual tax-exempt income threshold to ₱350,000. Other senators have proposed higher thresholds, including Senator Mark Villar (₱360,000), Senators Lorna Regina “Loren” Legarda and Sherwin “Win” Gatchalian (₱400,000), and Senator Joseph Victor Ejercito (₱600,000).
The existing threshold was introduced under the TRAIN Law in 2018, which amended Section 24 of the Tax Code and established a zero-percent income tax rate for individuals with taxable income not exceeding ₱250,000.
Since then, however, there have been significant changes in the country’s economy. Based on the latest Philippine Statistics Authority (PSA) data, a peso in 2018 had the equivalent purchasing power of only about 74 centavos in June 2026. Accounting for inflation, one would need approximately ₱338,000 today to purchase the same goods and services that ₱250,000 could buy in 2018.
Most Filipinos do not need economic data to appreciate this reality. It is reflected in everyday experiences. A trip to the grocery, a monthly electricity bill, or even a family dinner outside often says enough. Daily expenses that once seemed manageable have steadily become more expensive over the years. For most Filipinos, salary increases over the past several years have often felt less like an improvement in living standards and more like an attempt to keep up with rising costs.
It is worth noting that the proposed ₱350,000 threshold is remarkably close to the 2018 purchasing power of the original ₱250,000 exemption threshold. But looking at it another way, one could ask whether the proposal is truly creating a new tax benefit or merely restoring what taxpayers effectively lost to inflation over the years. The proposal may be less about giving taxpayers a brand-new benefit and more about updating a threshold that has not kept pace with rising prices.
One of the fundamental principles of taxation is that people should contribute according to their ability to pay. However, ability to pay is not determined solely by the amount reflected on a payslip. It also depends on what that income can actually buy. Rising prices mean that the same amount of money buys fewer goods and services today than it did eight years ago.
Inflation therefore cannot be ignored when evaluating whether existing tax thresholds remain fair. A threshold that remains unchanged may eventually cease to reflect the same level of economic capacity that lawmakers originally intended to exempt from tax.
House Bill No. 10345 addresses part of this concern by increasing the tax-free threshold from ₱250,000 to ₱350,000. The succeeding marginal tax rates of up to 35% are generally retained.
While the proposal provides immediate relief to workers whose incomes fall near the exemption threshold, it does not completely address the broader impact of inflation on the income tax system because rising prices can also affect the relevance of the other income tax brackets.
Determining the right exemption threshold is ultimately a policy decision. Inflation is an important consideration, but it is not the only one. Congress must also weigh wage levels, household spending patterns, current economic conditions, and the government's revenue requirements.
If the goal is simply to restore the purchasing power of the original ₱250,000 threshold, then the proposed ₱350,000 appears reasonably aligned with the economic changes that have occurred since 2018. But if the goal is to provide a meaningful new tax benefit beyond restoring lost purchasing power, the proposal may warrant further discussion.
The more important issue is not whether ₱350,000 is the perfect number but whether tax thresholds should remain unchanged for long periods even as the value of money changes.
The challenge for policymakers is finding the appropriate balance between taxpayer relief and government revenue. Raising the threshold aggressively may reduce funds available for public services, but leaving it unchanged for too long may gradually increase the burden on taxpayers whose incomes have failed to keep pace with inflation.
If inflation continues in the coming years, today's adjustment may easily become insufficient in the coming years. Instead of waiting many years before revisiting tax thresholds, Congress should include an automatic adjustment to inflation in the bill to ensure that the income tax brackets continue to reflect current economic realities.
After all, tax fairness is not only about how much income the government taxes. It is also about whether the income being taxed represents the same economic capacity it did when the threshold was first established.
Let's Talk Tax is a weekly newspaper column of P&A Grant Thornton that aims to keep the public informed of various developments in taxation. This article is not intended to be a substitute for competent professional advice.
As published in BusinessWorld, dated 18 August 2026
