Individual taxpayers will get income tax breaks next year, providing Filipino consumers additional purchasing power, but would result in billions of foregone government revenues.

This is because the second tranche reduction in personal income tax as mandated under the Tax Reform for Acceleration and Inclusion (TRAIN) law will take effect beginning Jan. 1, 2023.

Salaried employees and self-employed individuals earning a taxable income of P250,000 per year, or around P21,000 a month, are still exempted from paying the personal income tax (PIT).

But other taxpayers in higher income brackets, except those who are earning more than P8 million, will enjoy lower tax rates ranging from 15 percent to 30 percent by 2023.

Effectively, it decreased the tax rates by five percent for those with taxable income of more than P250,000 up to P2 million, while a two percent reduction in tax rate was noted for those individuals earning of more than P2 million up to P8 million.

"The TRAIN law adjusted personal income taxes and fixed the inequity of our tax system,” Finance Secretary Benjamin E. Diokno in a statement on Wednesday, Dec. 28.

“We want our taxpayers to reap the fruits of their labor while enabling them to contribute their fair share to national development,” he added.

To maintain the progressivity of the tax system, the rate for ultra-rich or those earning P8 million a year and above has been maintained at 35 percent.

However, the tax reductions come at the cost, as it is poised to lower government tax collections by around P97.7 billion per year.

The Duterte administration had proposed to President Marcos to defer the implementation of the second tranche reduction in personal income tax to manage the record debt that the new administration inherited. The proposal was thumbed down.

“With the said reduction in the annual Income Tax rates, Individuals Earning Purely Compensation Income will have lower withholding tax deductions from their monthly salary, thereby increasing their take-home pay,” Bureau of Internal Revenue Commissioner Romeo D. Lumagui, Jr. said.

The TRAIN law, which was the first package under former President Duterte’s comprehensive tax reform program, reduced personal income taxes for 99 percent of workers that gave them much-needed relief after 20 years of non-adjustment.

Former President Duterte signed the TRAIN law into Republic Act No. 10963 on Dec. 19, 2027.