DOF proposes higher excise taxes, 'wealth tax' to offset losses from tax reliefs

The Department of Finance (DOF) is proposing a new comprehensive tax reform package to legislate President Ferdinand Marcos Jr.’s tax relief promises and to offset anticipated revenue losses by raising taxes on vices, single-use plastics, and the introduction of a “wealth tax” targeting luxury vehicles and items, private jets, and other non-essential goods.

Under its ProGRESS bill or Promoting Growth, Revenue, and Equity towards Socio-Economic Sustainability, the DOF is estimating to generate P518.71 billion in fresh revenues from its tax reforms from 2027 to 2030 while granting P326.92 billion in tax relief, resulting in a net gain of P191.77 billion.

In his fifth State of the Nation Address (SONA), Marcos called on lawmakers to expand the exemption ceiling for personal income tax to those earning P350,000 yearly from the current P250,000.

The President also proposed to exempt micro and small businesses from paying the minimum corporate income tax (MCIT), equivalent to 2% of gross income of a corporation for a period of 12 months.

Under the ProGRESS bill, the personal income tax-exempt ceiling adjustment would result in the following:

• The threshold for tax-exempt annual income increases from P250,000 to {350,000, giving low-to-middle earners annual savings of up to P15,000.
• The lower tax rates for the next tiers will provide annual savings of about P17,500 for anyone earning above P350,000.
• Individuals earning between P350,000 and P450,000 will pay 15% on the excess over P350,000.
• Individuals earning between P450,000 and P800,000 will pay a base tax of P15,000 plus 20% on the excess over P450,000.
• Those earning P800,000 to P2 million will pay P85,000 base tax plus 25% in excess over P800,000
• Individuals earning P2 million to P8 million will be charged a base tax of P385,000 plus 30% in excess over P2 million
• Earners of more than P8 million will pay a base tax of P2.185 million plus 35% of excess over P8 million

Meanwhile, with the proposed minimum corporate income tax exemption, micro (with less than P3 million gross sales) and small (with gross sales between P3 million and P20 million enterprises will no longer be required to pay the MCIT, resulting in a total of P26.60 billion in revenue impact over the next four years.

To offset the foregone revenue from the tax cuts, the DOF proposes the following tax measures:

• Expansion of sugary drinks tax, with expected P296.97 billion in new revenues: Taxes on drinks using standard sweeteners will jump from P6 to P20 per liter, while high-fructose corn syrup drinks will face a P40 per liter tax. Frozen treats like ice cream, sorbet, and frozen yogurt will also be taxed, and previous exemptions for soy milk and 100% natural juices will be removed.
• Updating the Motor Vehicle Road User Tax, with expected P89.58 billion additional revenues: Road user fees will be updated for inflation to fund road maintenance, adjusting rates that have remained unchanged for over two decades.
• Excise tax on plastics (P52.19 billion new revenues): A new P150 per kilogram tax will target single-use plastics, including "sando" bags, "labo" bags, and sachets.
• Excise tax on vapes, e-cigarettes, and alcohol (P64.32 billion new revenues): E-cigarettes will face a flat tax of P72.90, vape devices will have a new P150 per-unit tax, novel tobacco products will be taxed at P72.90 per two grams or milliliters, and taxes on distilled spirits will increase.

Tax on “luxury” items (P15.64 billion additional revenue): A top tax tier of 75% will apply to luxury vehicles worth over P8 million, and private jets will be subject to excise taxes for the first time. —RF, GMA News