Think tank warns of risks in tax holiday

MANILA, Philippines — The proposed one-month income tax holiday may provide only a temporary boost in consumer spending while posing risks of a wider budget deficit and offering little long-term benefit to investment, productivity, or overall economic growth, according to New York-based think tank Global Source Partners Inc.

GlobalSource emphasized that targeted and inclusive relief measures are more effective than blanket tax exemptions, noting that the tension between political visibility and economic prudence continues to shape Philippine policymaking.

A pattern, which the group said has contributed to policy weaknesses and the country’s unsustainable growth trajectory.

“The potential fiscal cost of about P50 billion to P80 billion would widen the budget deficit unless offset by spending cuts or higher borrowing, both of which could be destabilizing. With limited structural impact on investment or productivity, the measure risks adding to the deficit without sustained economic payoff,” GlobalSource said.

Sen. Erwin Tulfo has proposed the “One-Month Tax Holiday of 2025,” a measure that would exempt employees from paying income tax for one month.

Data from the Bureau of the Treasury showed that the country’s budget deficit widened by nearly 25 percent to P869.2 billion from January to August, compared to the same period last year, when it was P696.9 billion.

A tax holiday would result in lower government revenues, potentially widening the deficit further.

GlobalSource noted that the proposed measure offers no lasting solution to the country’s persistent structural inflation pressures or real income stagnation.

“The one-off increase in disposable income may temporarily raise spending on discretionary goods and services. However, the multiplier effect would be small and dissipate after one to two months,” GlobalSource said.

Philippine Chamber of Commerce and Industry president Enunina Mangio said that lasting public confidence stems from combating corruption and promoting transparency, rather than relying on short-term tax incentives.

According to GlobaSource, the main drawback of the proposed one-month income tax holiday is its failure to benefit lower-income workers.

“Employees earning P20,833 or less per month already pay no income tax under current law. This means that roughly six out of 10 wage earners, mostly from the low-income and informal sectors, would not receive any relief,” the think tank said.

It cautioned that the measure raises concerns about equity and progressivity, as those least affected by inflation stand to benefit the most. Meanwhile, the poor and near-poor, who bear the brunt of rising food and energy costs, receive no direct relief.

“Alternative relief mechanisms, such as targeted cash transfers or temporary value-added tax reductions on basic goods, would likely generate a broader and fairer social effect,” GlobalSource said.