DOF eyes higher excise taxes to fund middle-class tax relief

The Department of Finance (DOF) is proposing higher excise taxes on sweetened beverages, e-cigarettes, alcohol, plastics and vehicles to offset revenue losses from planned income tax relief for middle-income earners and small businesses.

In a Monday briefing, DOF Undersecretary Karlo Fermin Adriano said the measures form part of the proposed Promoting Growth, Revenue, and Equity towards Socio-Economic Sustainability (ProGRESS) package, which the department expects to generate P518.71 billion from 2027 to 2030, more than enough to cover an estimated P326.92 billion in foregone revenues from the tax cuts. The package would leave the government with a net revenue gain of P191.77 billion.

“ProGRESS is a very timely intervention because many of our stakeholders, including legislators, are asking for a meaningful tax relief or fiscal relief for the middle income classes,” he said.

“The middle income class pay a lot of taxes, but they're not poor enough to qualify for the ayudas, but not rich enough to have a very comfortable life,” he added.

ProGRESS seeks to raise the personal income tax exemption threshold to P350,000 from P250,000 and exempt micro and small enterprises from the minimum corporate income tax. The DOF estimates the measures would benefit at least 3.13 million individual taxpayers, 96 percent of whom are in the lower-middle- to middle-income brackets, as well as 78,000 micro and small enterprises.

The tax breaks are projected to cost the government P61.06 billion in personal income tax revenues and P5.96 billion from the corporate tax exemption.

To compensate for the foregone revenues, the DOF wants to raise the excise tax on sweetened beverages to P20 per liter for sugar-sweetened drinks and P40 per liter for those using high-fructose corn syrup, potentially generating P296.97 billion through 2030.

Adriano said the DOF is also proposing a unified P72.90 excise tax on e-cigarettes beginning in 2027, a P150-per-unit tax on e-cigarette devices, and a P72.90 tax per two grams or two milliliters of novel tobacco products. The department is likewise seeking adjustments to alcohol and automobile taxes, as well as the motor vehicle user's charge.

A P150-per-kilogram excise tax on plastic products, including sand bags, labo bags and sachets, is also being proposed, subject to 5-percent annual indexation.

Projected collections include P89.58 billion from the motor vehicle user's charge, P52.19 billion from plastics, P33.06 billion from cigarettes and novel tobacco products, P31.26 billion from alcohol and P15.64 billion from automobile taxes.