October 27, 2025 | 12:00am
Amid rising costs
MANILA, Philippines — The Department of Finance (DOF) and the Bureau of Internal Revenue (BIR) are proposing higher limits on tax-free allowances and benefits for private and public sector employees to cushion the impact of inflation and rising expenses.
In a move to ease the burden of tax payments, Finance Secretary Ralph Recto has also ordered the BIR to review the possibility of exempting certain taxpayer groups from the duty to withhold and remit creditable withholding taxes.
“We have always aimed to ease the burden on taxpayers. Through this proposal, we want the public to truly feel the relief, as it will allow them to take home a bigger portion of their income and help lessen their daily expenses,” Recto said.
While ensuring fiscal discipline and competitiveness across industries, workers in both the private and public sectors will receive higher tax-free allowances and benefits to offset inflation and rising living costs under the proposal.
It also seeks to increase the tax-exempt meal allowance for overtime and night-shift workers to 30 percent of the minimum wage from 25 percent, while raising the annual cap for collective bargaining agreements and productivity incentives to P12,000 from P10,000.
The proposal raises the tax-free limit for monetized unused vacation leave credits of private sector employees to 12 days from 10 days, while retaining the existing uncapped benefit for government workers’ monetized vacation and sick leaves.
Likewise, the tax-exempt limit for uniform and clothing allowance will be raised to P8,000, or a P1,000 increase. The medical cash allowance for dependents will be hiked to P2,000 per semester, while rice subsidies will rise to P2,500 per month or its equivalent market value.
“These increases will have minimal impact on the government revenues but will definitely make a significant difference for our workers,” Recto said.
The proposal also seeks to raise the annual tax-exempt cap for medical assistance to P12,000 and increase the monthly laundry allowance to P400.
In addition, the ceiling for employee achievement awards will be hiked to P12,000 per year, while the limit for Christmas or anniversary gifts will be adjusted to P6,000 annually.
The DOF and BIR are also reviewing measures to streamline and lower withholding tax rates in a bid to ease compliance costs for taxpayers.