P400,000 income tax exemption sought to raise take-home pay

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MANILA, Philippines — A senator is pushing for the urgent passage of a tax relief bill that seeks to raise workers’ take-home pay as middle-income Filipinos grapple with rising prices.

The proposed Granting Increase in Take-Home Pay for All Working Filipinos Act, or GINHAWA, seeks to amend the National Internal Revenue Code by raising the income tax exemption threshold from P250,000 to P400,000 a year.

The bill's goal is to provide “equitable relief to a greater number of taxpayers and their families” by improving disposable income and increasing economic activity.

“The middle class has been the lifeblood of the local economy, driving domestic consumption and contributing significantly to government revenue,” Sen. Sherwin Gatchalian said in a statement Tuesday, May 5.

He said the middle class has been the “lifeblood” of the local economy, driving consumption and contributing significantly to government revenue.

Gatchalian made the call as the government reported that national headline inflation accelerated to 7.2% in April—the fastest rise in prices in the country since March 2023. The shock has been an effect of oil supply disruptions after the United States and Israel launched attacks on Iran.

What the bill changes

Under the bill, individuals earning up to P400,000 a year would pay no income tax. Those earning above P400,000 would be taxed under a revised graduated schedule.

The measure also seeks to raise the tax-exempt cap for 13th month pay and other benefits to P150,000 from the current P90,000.

It would also exclude from gross income several forms of additional compensation required under the Labor Code, including holiday pay, overtime pay, night shift differential, hazard pay and service charges.

The bill, however, specifies that overtime pay exceeding P100,000 would still be included in gross income.

For service workers, the bill would remove taxes on service charges distributed to employees.

For poll workers, it would exempt honoraria, allowances, service credits and other election-related benefits granted by the Commission on Elections.

Relief for workers, smaller taxpayers

The bill also proposes to shift fringe benefits for some employees away from the current 35% final tax treatment and include them instead in the employee’s gross income subject to graduated income tax rates.

It would exempt life, health and other non-life insurance premiums paid by employers from fringe benefits tax.

For small businesses, the measure would allow micro taxpayers to claim an additional 50% deduction on salaries, wages and other compensation paid to employees. It would also exempt micro taxpayers from withholding tax requirements.

Relief for small businesses. The bill also seeks to raise the VAT-exempt threshold for businesses from P3 million to P4 million in gross annual sales, with future adjustments tied to the consumer price index beginning Jan. 1, 2029.

Gatchalian said the measure is meant to give workers “financial space” as households absorb higher costs.

The bill’s explanatory note says working Filipinos are facing “rising prices of essential commodities” and market uncertainty, making it harder for families to adjust their finances.