Manila: Senate President Pro Tempore Vicente Sotto III has introduced a legislative proposal aimed at increasing the income tax exemption threshold for Filipino workers. The bill, filed on Tuesday, seeks to make annual earnings of up to PHP350,000 tax-free beginning January 1, 2027, under Senate Bill No. 2338, also known as the proposed Expanded Income Tax Exemption Act of 2026.

According to Philippines News Agency, the proposed legislation would raise the current tax exemption ceiling by PHP100,000 from the existing PHP250,000 threshold established under the Tax Reform for Acceleration and Inclusion law. Sotto emphasized that this initiative is designed to offer significant tax relief, enabling Filipino workers to retain a larger portion of their income.

The proposal aligns with President Ferdinand R. Marcos Jr.'s recent call during his fifth State of the Nation Address, urging Congress to extend tax relief to a broader segment of the workforce. Sotto highlighted that the current exemption threshold has not kept pace with the evolving economic landscape, as salary increments have inadvertently pushed minimum-wage and entry-level employees into the taxable bracket without a proportional increase in their purchasing power.

Sotto pointed out that the costs of essentials such as food, transportation, and electricity have escalated more rapidly than wages, exacerbated by factors such as the Middle East conflict and oil supply disruptions. The bill proposes to maintain existing marginal tax rates while adjusting the base amounts in subsequent income brackets to accommodate the increased exemption.

Under the proposed tax schedule, individuals earning above PHP350,000 would experience a reduction of PHP15,000 in annual income taxes. Those with earnings exceeding PHP350,000 but not surpassing PHP400,000 would be taxed at 15 percent on the amount exceeding PHP350,000. For higher income brackets, tax rates would remain between 20 percent and 35 percent.

The Department of Finance, with recommendations from the Bureau of Internal Revenue, would be tasked with issuing the implementing rules and revising the withholding tax tables within 90 days. Sotto expressed that the measure aims to provide workers with additional financial flexibility as rising living costs continue to diminish the value of their wages.