Overview of Personal Income Tax in the Philippines

In the Philippines, progressive taxation is applied, as in Japan, with the highest rate being 35%. Following the first phase of tax reform (the TRAIN Law), a major revision of personal income tax has been implemented since January 2023.

This article introduces personal income tax in the Philippines.

Personal Income Tax Rates

As of September 2024, personal income tax in the Philippines is as follows. The tax year is based on the calendar year, from January 1 to December 31.

As of September 2024, the average wage in the Philippines is estimated at approximately PHP 105,000 per year (about PHP 8,750 per month). The minimum wage for non-agricultural workers in Metro Manila (NCR) is PHP 610 per day (about PHP 13,270 per month) effective from July 16, 2023, and in Cebu City, it is PHP 501 per day (about PHP 10,900 per month) effective from October 2, 2024. Since these amounts are below the taxable income threshold of PHP 250,000 per year shown in the table above, most Filipinos are exempt from income tax.

On the other hand, salaries for professionals have risen rapidly in recent years, and tax revenue is largely secured through high-earning Filipinos.

Also, like Japan, the Philippines employs progressive taxation, but the top tax rate is lower than in Japan, which can be seen as resulting in lower income taxes.

Major Non-Taxable Income

Personal income tax is calculated by deducting the following non-taxable income from total income. By effectively utilizing the non-taxable income allowance, it is possible to reduce the taxation on employees’ income.

• Life insurance proceeds
• Employee contributions to social security
• 13th-month pay and other allowances (PHP 90,000/year)
• De Minimis benefits (total up to PHP 90,000/year):
  1. Cash payment for unused vacation leave of up to 10 days per year
  2. Medical allowance for dependents (PHP 250/month)
  3. Rice allowance (PHP 2,000/month or 50 kg)
  4. Uniform/clothing allowance (PHP 6,000/year)
  5. Actual medical expenses (PHP 10,000/year)
  6. Laundry allowance (PHP 300/month)
  7. Recognition awards (up to PHP 10,000/year; cash not allowed)
  8. Christmas or holiday gifts (PHP 5,000/year)
  9. Overtime meal allowance (25% of the regional minimum wage)
  10. Compensation under Collective Bargaining Agreements (CBA) or Productivity Incentive Schemes (PHP 10,000/year)

Taxpayer Obligations for Personal Income Tax

As in Japan, companies are required to withhold income tax on employees’ salaries and other compensation and file and pay it to the tax authorities by the 10th of the following month.

Additionally, at the end of the year, companies conduct a year-end adjustment and, by January 31 of the following year, submit the employees’ tax returns (BIR Form 1604CF) and the Alphalist, as well as distribute and file the annual withholding tax certificate (BIR Form 2316) to both employees and the BIR.

In the Philippines, there are several differences from Japan, such as salaries being paid twice a month and the requirement to pay the 13th-month pay at the end of the year. Payroll errors can also lead to unexpected troubles, and particular care is needed in the Philippines, where worker protection is strongly emphasized.

Our firm provides support for payroll calculation and tax filing so that Japanese companies can focus on their business with peace of mind. Please feel free to contact us through the inquiry form.