Republic of the Philippines
HOUSE OF REPRESENTATIVES
Batasan Hills, Quezon City

TWENTIETH CONGRESS:
First Regular Session

HOUSE BILL No._3784

Introduced by 4Ps Partylist Representative
JC M. ABALOS

EXPLANATORY NOTE

Section 9, Article II of the 1987 Constitution provides that: “The State shall
promote a just and dynamic social order that will ensure the prosperity and
independence of the nation and free the people from poverty through policies that
provide adequate social services, promote full employment, a rising standard of
living, and an improved quality of life for all.”

Pursuant to this constitutional directive, it is imperative that the State
continuously reviews and updates its tax laws to ensure that they remain fair,
equitable, and responsive to economic realities — particularly those affecting Filipino
workers.

Under Republic Act No. 10963, or the Tax Reform for Acceleration and
Inclusion (TRAIN) Law, which took effect in 2018, the ceiling for tax-exempt 13th
month pay and other bonuses was raised to P90,000. At the time, this adjustment
was meant to reflect prevailing income levels and price conditions, thereby affording
workers greater disposable income during the holiday season and for other financial
needs.

However, based on data from the Philippine Statistics Authority (PSA), prices
have increased significantly since 2018. The Consumer Price Index (CPI) has risen
from 100 in 2018 to approximately 127 as of mid-2025, indicating an average inflation
rate of about 3.5% per year. In real terms, this means that the P90,000 threshold set in


2018 now has the purchasing power of only around P71,000. The intended relief that
the exemption provided has been eroded by inflation, diminishing its value and
impact on employees’ financial well-being.

This bill seeks to increase the ceiling for 13th month pay and other bonuses as
exclusion in gross income to better reflect current economic conditions and restore its
real value in favor of Filipino workers. By increasing the exemption cap, the measure
aims to update the tax-exempt bonus threshold to preserve workers’ purchasing
power, promote tax equity, boost disposable income during peak spending seasons,
and stimulate economic activity in line with current economic realities.

Representative
4Ps Partylist


Republic of the Philippines
HOUSE OF REPRESENTATIVES
Batasan Hills, Quezon City

TWENTIETH CONGRESS
First Regular Session

HOUSE BILL NO. 3784

Introduced by 4Ps Partylist Representative
JCM. ABALOS

AN ACT INCREASING THE CEILING ON THE 13™ MONTH PAY,
CHRISTMAS BONUS AND OTHER BENEFITS EXCLUDED FROM THE
COMPUTATION OF GROSS INCOME FOR THE PURPOSES OF INCOME
TAXATION, AMENDING SECTION 32, UNDER REPUBLIC ACT NO. 8424,
OTHERWISE KNOWN AS THE NATIONAL INTERNAL REVENUE CODE OF
1997, AS AMENDED

Be it enacted by the Senate and House of Representatives of the Philippines in
Congress assembled:

SECTION 1. Declaration of Policy. ~ The State upholds a just and dynamic
social order that promotes national prosperity and independence, and seeks to free
the people from poverty through equitable economic and fiscal measures. In
accordance with Section 9, Article II of the 1987 Constitution, the State recognizes the
need to ensure fairness in the tax system and to uphold the principles of equity and
social justice in the treatment of income earned by Filipino workers.

In this light, the State acknowledges that the current ceiling for tax-exempt
13th month pay and other bonuses no longer reflects present economic realities,
diminishing its intended benefit to workers. As inflation erodes the real value of
income, compensation that was once tax-exempt now becomes partially taxable,
undermining the relief originally granted.


Accordingly, the measure seeks to raise the ceiling for tax-exempt 13th month
pay and other bonuses, thereby protecting the real value of workers’ compensation,
enhancing disposable income especially during peak spending seasons, and
promoting greater equity in the tax system.

SEC. 2. Section 32 of the National Internal Revenue Code, as amended, is
hereby further amended to read as follows:

“SEC. 32. Gross Income. — XXX

(B) Exclusions from Gross Income. ~ The following items shall not be
included in gross income and shall be exempt from taxation under this
Title:

XXX

(7) Miscellaneous Items. —
(e) 13th Month Pay and Other Benefits. — Gross benefits received
by officials and employees of public and private entities:
Provided, however, That the total exclusion under this
subparagraph shall not exceed [Ninety thousand pesos
(PhP90,000)] ONE HUNDRED TWENTY THOUSAND PESOS
(P120,000) which shall cover:

(i) Benefits received by officials and employees of the
national and local government pursuant to Republic Act
No. 6686;

(ii) Benefits received by employees pursuant to
Presidential Decree No. 851, as amended by
Memorandum Order No. 28, dated August 13, 1986;

(iii) Benefits received by officials and employees not
covered by Presidential Decree No. 851, as amended by
Memorandum Order No. 28, dated August 13, 1986; and

(iv) Other benefits such as productivity incentives and
Christmas bonus.

PROVIDED, THAT NOT LATER THAN THREE (3) YEARS
AFTER THE EFFECTIVITY OF THIS ACT AND EVERY THREE
(3) YEARS THEREAFTER, THE AMOUNT HEREIN STATED

4


SHALL BE ADJUSTED TO ITS PRESENT VALUE BASED ON
THE CONSUMER PRICE INDEX (CPI), AS PUBLISHED BY
THE PHILIPPINE STATISTICS AUTHORITY (PSA).

PROVIDED, FURTHER, THAT IN DETERMINING SUCH
ADJUSTMENT, THE CPI SHALL BE USED _ IN
COORDINATION WITH THE DEPARTMENT OF FINANCE
(DOF), THE DEPARTMENT OF ECONOMY, PLANNING, AND.
DEVELOPMENT (DEPDEV), AND OTHER RELEVANT
GOVERNMENT AGENCIES. THE ADJUSTMENT MAY ALSO
TAKE INTO ACCOUNT OTHER PERTINENT ECONOMIC
INDICATORS, SUCH AS WAGE GROWTH, POVERTY
THRESHOLDS, AND PREVAILING ECONOMIC
CONDITIONS, AS MAY BE NECESSARY.

XXX.”

SEC. 4. Implementing Rules and Regulations. — The Department of Finance
shall issue rules and regulations for the faithful and effective implementation of this
Act.

SEC. 5. Separability Clause. — If any part or provision of this Act is held
invalid or unconstitutional, the other provisions not affected thereby shall remain in
force and effect.

SEC. 6. Repealing Clause. — All laws, executive orders, issuances, decrees,
rules and regulations inconsistent with or contrary to the provisions of this Act are
deemed amended, modified or repealed accordingly.

SEC. 7. Effectivity. —- This Act shall take effect fifteen (15) days after its

publication in the Official Gazette or in a newspaper of general circulation.

Approve,