As President Ferdinand R. Marcos Jr. prepares to deliver his 2026 State of the Nation Address (SONA), he has an opportunity to pursue a reform that millions of Filipinos would immediately feel: increasing workers’ take-home pay while preserving fiscal responsibility.
Several bills have already been filed in both the House of Representatives and the Senate proposing higher income tax exemptions, lower withholding taxes, and tax-free overtime pay. The growing bipartisan support reflects a shared reality—the Filipino middle class deserves meaningful tax relief.
Today, about 82 percent of personal income tax collections come from compensation income earners whose taxes are automatically withheld. Yet inflation continues to erode their purchasing power, while many micro, small, and medium enterprises (MSMEs) struggle with rising operating costs.
The challenge is no longer whether to provide relief, but how to finance it sustainably.
Rather than relying on temporary VAT or excise tax suspensions that reduce revenues without addressing structural weaknesses, the Philippines can adopt a fully funded reform strategy anchored on three complementary measures.
First, gradually increase the personal income tax exemption from ₱250,000 to ₱400,000 beginning in 2026 as the first step toward a ₱1 million tax-free income by 2028. The initial revenue cost is estimated at about ₱45-60 billion annually, eventually reaching roughly ₱180-220 billion once fully implemented. This should be viewed not as a fiscal loss but as an investment in household consumption, entrepreneurship, and domestic economic growth.
Second, recover revenues that should already be collected. Government should intensify risk-based audits of tax evasion and unexplained wealth where credible evidence exists, supported by stronger coordination among the Bureau of Internal Revenue, AMLC, Ombudsman, COA, SEC, BSP, and other agencies within the bounds of existing laws and due process. A nationwide enforcement program could recover up to ₱1 trillion in deficiency and delinquent taxes over several years while reinforcing the principle that everyone is accountable under the law. Honest taxpayers should never carry a heavier burden because others evade their obligations.
Third, implement the OECD Global Minimum Tax and establish a modern National Revenue Authority. Delayed adoption of the Qualified Domestic Minimum Top-up Tax allows taxing rights to shift to other jurisdictions instead of the Philippines. Implementation could generate an estimated ₱300-500 billion over its first three years. At the same time, a digitally integrated National Revenue Authority that modernizes the BIR and Bureau of Customs through artificial intelligence, data analytics, and risk-based compliance can significantly reduce leakages, improve voluntary compliance, facilitate legitimate trade, and strengthen long-term revenue collection without raising tax rates.
Together, these reforms can more than finance higher take-home pay while making the country’s revenue system fairer, smarter, and more competitive.
The Marcos administration has already advanced important economic reforms through CREATE MORE, the Strategic Investment Priority Plan, and investment promotion initiatives. Empowering the Filipino middle class can be the next chapter of that reform agenda.
In an increasingly uncertain world marked by inflation, geopolitical risks, and natural calamities, strengthening household purchasing power is more than economic relief—it is an investment in national resilience. A stronger middle class supports stronger MSMEs. Stronger MSMEs create better jobs. Better tax administration generates sustainable revenues. Together, they create a virtuous cycle of inclusive growth.
This is more than tax reform. It is an opportunity to build a legacy that protects Filipino families, rewards honest taxpayers, attracts long-term investment, and demonstrates that fiscal discipline and social equity can move forward together.
