For many freelancers, business runs in cycles—periods of abundance followed by stretches of scarcity. Survival hinges on balancing income against expenses, living within one's means, building savings, and staying relatively free of long-term debt. A reasonable income tax rate plays a supporting role, particularly one that establishes a predictable floor for financial planning. When earnings are volatile, the government's share of that income should not shift without warning. A tax threshold that remains frozen while the cost of living climbs becomes its own form of burden, quietly undermining those already struggling to make ends meet.

From this perspective, the government's plan to raise the personal income tax exemption from P250,000 to P350,000 deserves support. It acknowledges the straightforward reality that a tax threshold cannot remain locked in place while the costs of food, housing, transportation, healthcare, and education continue upward. The P250,000 figure was set under the Tax Reform for Acceleration and Inclusion (TRAIN) Law that took effect in 2018, meaning the threshold has now gone roughly seven years without adjustment.

The more challenging question is whether P350,000 is sufficient. For the moment, perhaps. The prudent approach would be to establish P350,000 as the floor by 2027 and shield it from inflation. Periodically, as conditions warrant, the government could request that Congress raise it further—potentially beginning in 2030.

The Department of Finance reports that the proposed increase would benefit at least 3.13 million workers, including roughly 1.2 million who would be removed entirely from the personal income tax rolls. Tax reductions, however, are never free. Every peso the government forgoes must be offset by alternative revenue, reduced spending, or a wider fiscal deficit.

With a higher threshold, many workers would gain several thousand pesos in additional annual take-home pay. But if the government reclaims most of that through elevated taxes embedded in food, transportation, electricity, and other essentials, the reform becomes an accounting exercise rather than meaningful relief. The structure of replacement taxes therefore matters nearly as much as the exemption itself.

An annual taxable income of P350,000 translates to P29,100 per month—hardly affluent. The Philippine Statistics Authority estimated that in 2023, a family of five required at least P13,873 monthly nationwide simply to meet minimum food and non-food needs. In Metro Manila, the poverty threshold stood at P15,713.

IBON Foundation offers another benchmark, estimating the Metro Manila family living wage at P1,221 per day in 2025. Annualized, that amounts to approximately P445,665. Measured against these figures, P350,000 is a defensible exemption—protecting income needed for ordinary family expenses, particularly in Metro Manila.

This is also why P450,000 merits consideration as a medium-term reference point, a possible second phase by 2030. Tax brackets should not remain static for years while inflation steadily erodes their real value. Taxation must be balanced against the preservation of purchasing power.

During a House hearing, National Statistician Claire Dennis Mapa told legislators that the P250,000 threshold would need to increase to approximately P356,000 merely to retain its original purchasing power, citing cumulative inflation of 42.4% since 2018. In other words, the proposed adjustment does not improve upon the 2018 exemption—it simply restores what inflation has stripped away.

The concern is that none of the bills currently before Congress addresses this problem going forward. HB 10345, approved by the House Ways and Means Committee, sets a flat P350,000 ceiling with no indexation mechanism. The Senate has yet to settle on a single version, but two bills propose P350,000 effective 2027, while another proposes P480,000. Every one of these measures establishes a new fixed number. None indexes the threshold to inflation. Congress therefore risks repeating, within three to five years, the very problem it is now attempting to correct—the phenomenon economists term "bracket creep," where inflation pushes nominal incomes into higher tax brackets without any real gain in purchasing power. Several jurisdictions, including the United States and the United Kingdom, apply some form of automatic inflation adjustment to their tax brackets to mitigate this effect. Inflation is inevitable—why not act proactively and build in provisions for future adjustments?

The President has also called for a broader revenue package taxing products linked to health, environmental, or luxury consumption to help offset the cost of the higher income tax exemption. Higher taxes on luxury vehicles and private aircraft are relatively easy to justify, as they predominantly affect the wealthy. Additional levies on tobacco, alcohol, and sugary beverages can be defended partly on the grounds that their consumption generates broader public health costs.

The Department of Finance proposes more than tripling the excise tax on sweetened beverages—from P6 to P20 per liter—alongside higher taxes on distilled spirits, e-cigarettes, heated tobacco, flexible plastics, luxury vehicles, and private aircraft. The department projects an additional P129.68 billion in annual tax revenue from 2027 to 2030, offsetting an estimated P81.73-billion annual cost from the raised exemption threshold, yielding a net gain of P47.94 billion per year through 2030.

Market analysts, as quoted in BusinessWorld, expect manufacturers to pass much of that tax burden onto consumers, calibrating price increases to avoid sharp declines in sales volume. Sweetened beverages, distilled spirits, e-cigarettes, heated tobacco, and plastic bags are consumed primarily by ordinary households, including poorer ones.

The fundamental tension is that income tax relief benefits only those who pay income tax. Everyone earning below the current P250,000 threshold will see no additional take-home pay from a higher exemption. Yet they will still absorb higher excise taxes through the prices of everyday goods. Poorer households would effectively help finance relief for workers who earn more than they do.

The answer is not to abandon the P350,000 exemption. It is to complement it—directing a portion of the new revenue toward programs that reach households outside the income tax system: targeted cash transfers, improved healthcare, nutrition assistance, transport subsidies, electricity lifeline rates, and similar measures. The broader principle is that tax reform should improve the standing of working households without worsening the position of those below them.

The President is correct to have urged Congress to raise the tax-free threshold. The current P250,000 exemption no longer holds the purchasing power it once did, and preserving it indefinitely effectively permits inflation to increase the real tax burden. Future threshold increases should follow, calibrated to inflation, household living costs, and fiscal capacity.

As a floor by 2027, P350,000 is workable. But Congress should recognize that the poverty threshold and living-wage estimates measure different things, and that policymakers should weigh what a household genuinely needs for an acceptable standard of living—not merely clearing the poverty line.

A properly calibrated income tax threshold acknowledges that a substantial share of working income is consumed by the ordinary cost of daily life, and that this cost rises each year, sometimes gradually, sometimes sharply. Ultimately, genuine tax relief should mean relief from inflation.

Marvin Tort is a former managing editor of BusinessWorld and a former chairman of the Philippine Press Council. (matort@yahoo.com)