Key tax reforms that shaped 2025

As Heraclitus, the Greek philosopher, aptly observed, “There is nothing permanent except change.” Whether in life or in our professional pursuits, we encounter change almost daily, and we adapt and overcome each one.

The year 2025, in particular, witnessed substantial and transformative developments in the field of taxation. As we start 2026, it is timely and fitting to look back on the significant changes implemented in Philippine tax laws over the past year.

THE CREATE MORE ACT
Signed into law in November 2024, Republic Act (RA) No. 12066, or the CREATE MORE Act, became fully operational in 2025. This legislation was introduced to improve the investment climate by enhancing incentives aimed at stimulating economic activity, supporting business growth, generating employment opportunities, and attracting greater foreign investment.

Among its key provisions are the lowering of corporate income tax from 25% to 20% for Registered Business Enterprises (RBEs) under the enhanced deduction regime; the extension of incentive periods; the codification of allowable deductions for input VAT paid on local purchases attributable to VAT‑exempt sales; and the broadened coverage of VAT zero‑rating to include goods and services deemed “directly attributable” to the Registered Export Enterprise’s registered projects, among others.

While the law introduces clearer and more streamlined rules that are expected to benefit enterprises, it likewise imposes heightened responsibilities on taxpayers. The continued enjoyment of these incentives now demands strict adherence to the measures governing invoicing, reporting, and documentation standards, thereby emphasizing the need for businesses to be more diligent and proactive in maintaining their eligibility under this enhanced regulatory framework.

VAT ON DIGITAL SERVICES
With the full implementation of VAT on Digital Services under RA No. 12023, which took effect on Oct. 18, 2024, digital service providers (DSPs), including non‑resident entities offering digital platforms, goods, and services in the Philippines, are now required to register with the Bureau of Internal Revenue (BIR) and remit VAT on their taxable transactions. This measure reflects the government’s broader initiative to modernize the tax landscape by addressing the rapid expansion of the digital economy and reinforcing compliance among both local and foreign service providers. In effect, it promotes a more level playing field between traditional businesses operating in the Philippines and digital enterprises serving the same market. Notably, transactions of non-resident DSPs became subject to VAT beginning June 2, 2025, following the implementation schedule set under the rules.

Accordingly, foreign digital service providers, even those without any physical presence in the Philippines, are now subject to VAT and must comply with the corresponding registration, invoicing, and reporting requirements imposed by the BIR.

THE CAPITAL MARKETS EFFICIENCY PROMOTION ACT
RA No. 12214, or CMEPA, which took effect on July 1, 2025, was passed to streamline the taxation of passive income, promote transparency, and enhance the growth and global competitiveness of the Philippine capital markets. By modernizing the tax framework governing passive income, the law introduces a more competitive, regionally aligned, and investor‑friendly regime. It also aims to encourage broader participation from ordinary Filipinos, thereby fostering a more inclusive and accessible investment environment.

Among its key reforms are the reduction of the stock transaction tax from 0.6% to 0.1%; the standardization of the final withholding tax on all interest income from peso and foreign currency bank deposits, trust funds, and similar instruments to 20%; the alignment of capital gains tax rates on the sale of unlisted domestic and foreign shares to 15%; and the reduction of the documentary stamp tax on the original issuance of shares from 1% to 0.75%. These measures collectively simplify compliance, lower investment costs, and harmonize the treatment of financial instruments.

Ultimately, CMEPA strengthens the foundation of the Philippine capital market, supports long‑term savings and wealth‑building opportunities, and enhances the country’s attractiveness as a destination for sustainable investment and economic growth.

THE AUDIT SUSPENSION
In November and December, the BIR issued Revenue Memorandum Circular (RMC) Nos. 1072025 and 1092025, which indefinitely suspended all ongoing field audits and related field operations, including the issuance of Letters of Authority (LoA), Mission Orders (MO), and the conduct of examinations and verifications of taxpayers’ books, records, and transactions, subject to specific exceptions outlined in the circulars.

This suspension was implemented to safeguard the integrity of audit operations by addressing systemic issues, protecting taxpayer rights, and developing a more transparent, standardized, and modernized audit framework. The issuance of these circulars was prompted by numerous complaints from taxpayers, stakeholders, and internal BIR units regarding alleged irregularities and inconsistencies in audit practices.

THE RULE ON DE MINIMIS BENEFITS
As the final tax issuance for 2025, Revenue Regulations (RR) No. 29‑2025 was promulgated to further amend RR No. 2‑98 by increasing the ceilings for non‑taxable de minimis benefits. The updated thresholds are as follows:

• Monetized unused vacation leave credits of private employees not exceeding 12 days during the year;

• Monetized value of vacation and sick leave credits paid to government officials and employees;

• Medical cash allowance to dependents of employees not exceeding P2,000 per employee per semester or P333 per month;

• Rice subsidy of P2,500 or one sack of 50 kg rice per month amounting to not more than P2,500;

• Uniform and clothing allowance not exceeding P8,000 per annum;

• Actual medical assistance (e.g., medical allowance to cover medical and healthcare needs, annual medical/executive check-up, maternity assistance, and routine consultations) not exceeding P12,000 per annum;

• Laundry allowance not exceeding P400 per month;

• Employee achievement awards (e.g., for length of service or safety achievement) in any form, whether in cash, gift certificate, or any tangible personal property, with an annual monetary value not exceeding P12,000 received by the employee under an established written plan which does not discriminate in favor of highly paid employees;

• Gifts given during Christmas and major anniversary celebrations not exceeding P6,000 per employee per annum;

• Daily meal allowance for overtime work and night/graveyard shift not exceeding 30% of the basic minimum wage on a per region basis; and

• Benefits received by an employee by virtue of a collective bargaining agreement (CBA) and productivity incentive scheme provided that the total annual monetary value received from both CBA and productivity incentive schemes combined do not exceed P12,000 per employee per taxable year.

This issuance underscores the government’s recognition of rising living costs and its intention to provide employees with more meaningful non‑taxable benefits.

The regulation was published on Dec. 22, 2025 and will take effect 15 days after its publication in the Official Gazette or on the BIR website.

As we close the chapter on 2025, it becomes clear that the year marked a pivotal moment in the evolution of Philippine taxation. The numerous reforms reflect the government’s commitment to fostering a fair, efficient, and forward‑looking tax environment. These developments not only address long‑standing systemic issues but also pave the way for a more transparent and investor‑friendly landscape that supports business growth and economic resilience.

As 2026 unfolds, taxpayers and stakeholders alike are encouraged to remain vigilant, adaptable, and well‑informed to fully maximize the benefits of these reforms and confidently navigate the continually evolving tax landscape. It is likewise hoped that the government will continue to introduce measures that promote a more equitable and progressive system of tax laws: one that supports sustainable development and contributes to a better Philippines.

Let’s Talk Tax is a weekly newspaper column of P&A Grant Thornton that aims to keep the public informed of various developments in taxation. This article is not intended to be a substitute for competent professional advice.

Margreth P. Vasquez is an associate from the Tax Advisory & Compliance practice area of P&A Grant Thornton, the Philippine member firm of Grant Thornton International Ltd.