Revenue concerns cloud Marcos’ proposed tax relief

By Justine Irish D. Tabile, Senior Reporter

THE HOUSE Committee on Ways and Means will prioritize legislation implementing President Ferdinand R. Marcos, Jr.’s proposed tax relief, even as analysts questioned how the government plans to offset the estimated revenue losses of at least P50 billion.

Marikina Rep. Romero “Miro” S. Quimbo, who heads the committee, on Tuesday said lawmakers are prepared to immediately advance the administration’s tax agenda outlined during Mr. Marcos’ fifth State of the Nation Address (SONA), including raising the income tax exemption threshold, exempting micro and small businesses from the minimum corporate income tax and granting a broader tax amnesty.

“The effects of inflation over the past years have significantly reduced the purchasing power of Filipino workers. Adjusting the income tax exemption threshold recognizes these realities and ensures that hardworking taxpayers are not unfairly penalized simply because prices have increased,” he said in a statement.

Department of Economy, Planning, and Development Secretary Arsenio M. Balisacan told reporters on Monday that the economic team had already discussed measures to offset the revenue losses from the proposed tax relief package, including possible increases in taxes on unhealthy products.

“It is a high priority. We should see it, hopefully, within the year,” Mr. Balisacan said.

At a press briefing on Tuesday, Mr. Quimbo said that the Department of Finance estimates that raising the annual personal income tax-exempt threshold to P350,000 from the current P250,000 would result in about P50 billion in foregone revenues.

However, Mr. Quimbo said the government plans to fully offset the revenue losses through higher excise taxes on vape products, heated tobacco, and sugar-sweetened beverages.

The lawmaker said the House aims to approve the measure on third and final reading by August, with implementation targeted by Jan. 1, 2027.

IMPACT ON GDP, INFLATION
Chinabank Research said the proposed increase in the annual income tax-exempt threshold could reduce government revenues by around P53 billion in 2027.

“While the fiscal cost is significant, the income tax brackets have remained unchanged since the TRAIN (Tax Reform for Acceleration and Inclusion) law took effect in 2018. The proposal could help pump-prime the economy, raising gross domestic product growth by an estimated 0.12 percentage point,” it said in a commentary on Tuesday.

Chinabank Research said the inflationary impact would likely remain minimal at around 0.05 percentage point, as the average tax savings would amount to only about P15,000 per taxpayer annually.

Based on the 5.7 million registered taxpayers as of 2024, Chinabank Research estimated that about 3.5 million Filipinos, or 62.2% of taxpayers, could benefit from the proposed tax relief.

“Qualitatively, in the short run, it will have a favorable effect of increasing the level of expenditures of households, other things being equal,” former Finance Secretary Gary B. Teves told BusinessWorld via Viber.

“But this might be very temporary if the inflation rate remains elevated, principally caused by external factors like the high oil prices and the secondary effects on food, transport and electricity prices,” he added.

GlobalSource Partners Philippine Analyst and Principal Adviser Diwa C. Guinigundo warned that although the proposal seeks to prevent the further erosion of middle-class purchasing power, the government has limited fiscal space to absorb the resulting revenue losses.

“The government has rather limited fiscal space so every peso of foregone revenue could further expand the budget deficit and if financed by borrowing, could increase debt servicing cost,” Mr. Guinigundo, who is also a former central bank deputy governor, told BusinessWorld.

“If not matched by corresponding revenue from somewhere else, that tax concession could indeed reduce spending on education and health, infrastructure, agricultural productivity and other forms of social protection,” he added.

However, Mr. Guinigundo cautioned that tax cuts would not address the supply-side factors driving inflation such as food shortages, weather disruption, and higher energy costs.

Former Finance Undersecretary Cielo D. Magno said the proposal to raise the income tax exemption threshold to P350,000 annually reflects inflation adjustments, although she said the government could have gone further.

“The adjustment of income tax exemption is due to inflation,”she told BusinessWorld in a Viber chat. “In fact, I would prefer they increase it to P500,000.”

Presidential Legislative Liaison Office (PLLO) Head Jose Maria Clemente “Joey” S. Salceda said the growth of the middle class depends on households’ ability to build wealth through savings and broad-based economic growth supported by domestic demand.

“You need higher disposable income for both,” he told BusinessWorld via Viber. “Per Secretary Frederick D. Go, the Department of Finance is coming up with a package of measures to make these proposals sustainable, and the PLLO will assist in whatever they need to get it through.”

Meanwhile, Jose Enrique “Sonny” A. Africa, executive director of IBON Foundation, said the tax relief proposals would provide welcome relief to middle-income households but raised concerns over their fiscal impact.

Mr. Africa also criticized the proposed tax amnesty, saying repeated amnesties weaken tax compliance.

“We wonder though how the government will make up the revenue losses from what’s clearly an effort to bolster popularity among the middle class and smaller businesses, especially from the apparent aversion for progressive tax reforms targeting billionaire wealth, high-income families and large corporations,” Mr. Africa said. “Those with the greatest ability to pay and benefiting the most from the economy should be returning more.”

Asian Consulting Group Founding Chairman and Chief Tax Adviser Raymond “Mon” A. Abrea said the President’s proposal acknowledges that the middle class is overtaxed and underserved.

“Through the increase of tax exemption, we can increase the take home pay or increase the money in the pocket of our ordinary Filipinos or the middle class as we say,” he told BusinessWorld in an interview late on Monday.

However, Mr. Abrea said the proposed reform should only be the beginning, arguing that the income tax-exempt threshold should eventually be raised to P1 million.

“I would want to believe that the P350,000 is the minimum and not necessarily the end of the negotiation. Because I really believe that we deserve a one million tax-free income for every Filipino,” he added.

Mr. Abrea said the foregone revenues could also be offset through a nationwide audit of unexplained wealth, greater automation of tax administration and the implementation of the Organisation for Economic Co-operation and Development’s global minimum tax.

He estimated that an unexplained wealth audit could generate more than P1 trillion in additional revenues, while the global minimum tax could yield hundreds of billions of pesos.

“We continue to lose collection not because we don’t have enough taxes, but because we are unable to collect them. The inefficiency is so significant that those who are rich and powerful continue to avoid taxes,” he added. — with Erika Mae P. Sinaking and Pexcel John Bacon