By Benjamin Cuaresma
MANILA — Senator Loren Legarda has introduced a measure seeking sweeping reforms to the country’s tax system, aiming to give Filipino workers bigger take-home pay while shielding their earnings from the effects of inflation.
Filed as Senate Bill No. 2255, or the Keeping Incomes Tax-relieved and Augmented (KITA) Act, the proposal seeks to amend the National Internal Revenue Code by expanding tax exemptions, reducing taxes on employee benefits, and introducing mechanisms that would automatically adjust tax brackets to inflation.
Legarda said the bill recognizes the growing financial pressures faced by Filipino families and seeks to ensure that workers retain a greater share of the income they earn through regular work and additional hours.
Under the proposed measure, individuals earning up to P400,000 annually, or roughly P33,000 a month, would be exempt from paying income tax.
The bill also seeks to raise the tax-free ceiling on 13th-month pay and other bonuses from the current limit to P150,000, allowing employees to keep more of their yearly incentives.
In a major shift in tax policy, the proposal would exempt overtime pay, holiday pay, night shift differential, hazard pay, service charges received by workers in the service sector, and honoraria and allowances granted to election personnel from income taxation.
Legarda said these forms of compensation are earned through extra work and sacrifice and should directly benefit workers and their families instead of being reduced by taxes.
To prevent inflation from gradually eroding tax relief, the bill requires the automatic adjustment of income tax brackets and exemption thresholds every five years. The proposed indexation aims to address “bracket creep,” where salary increases caused by inflation push workers into higher tax brackets despite little or no real increase in purchasing power.
Beyond individual taxpayers, the KITA Act also provides incentives for businesses.
The proposal raises the value-added tax (VAT) exemption threshold for micro-enterprises from P3 million to P4 million, grants an additional labor expense deduction, eases withholding tax requirements, and allows establishments to claim tax credits for discounts extended to senior citizens, persons with disabilities, and solo parents.
It likewise proposes replacing the existing 35-percent fringe benefit tax with a progressive tax structure, exempting employer-paid insurance premiums and reducing the VAT on life and health insurance premiums from 12 percent to 2 percent.
The bill also contains administrative reforms, including simplified taxpayer registration procedures and extended filing deadlines during calamities.
Legarda said the proposed legislation builds on earlier measures she championed to cushion Filipinos from rising prices, including the Fuel Tax Relief Act, which authorizes the suspension of excise taxes on petroleum products during periods of abnormal fuel price increases.
She emphasized that the government’s tax policies should protect workers’ purchasing power and ensure that more of their hard-earned income goes toward food, education, healthcare, and other essential family expenses rather than higher tax payments.
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