Progressive income tax system in the Philippines where tax rates increase with higher income levels, ranging from 0% (up to ₱250,000 annual income) to 35% (over ₱8,000,000).
The graduated income tax is the standard Philippine income tax rate schedule, implemented under the TRAIN Law (Republic Act 10963, effective 2018). It applies to all individuals — employees, self-employed, and mixed income earners — unless they qualify for and elect the 8% flat tax option.
The current brackets (2023 onwards): 0% on the first ₱250,000; 20% on the excess over ₱250,000 up to ₱400,000; 25% on ₱400,001 to ₱800,000; 30% on ₱800,001 to ₱2,000,000; 32% on ₱2,000,001 to ₱8,000,000; 35% on anything over ₱8,000,000. These rates are applied to net taxable income (gross income minus allowable deductions).
In practice: Freelance architect Benjo earns net taxable income of ₱900,000 for 2025. Tax computation: 0% on first ₱250,000 = ₱0; 20% on ₱150,000 (₱250,001–₱400,000) = ₱30,000; 25% on ₱400,000 (₱400,001–₱800,000) = ₱100,000; 30% on ₱100,000 (₱800,001–₱900,000) = ₱30,000. Total income tax = ₱160,000.
Why it matters: The graduated system rewards deduction tracking — every allowable expense reduces net taxable income, which may push income into a lower bracket. This is in contrast to the 8% flat tax option (where deductions don't matter). For professionals with significant business expenses, the graduated system often yields lower total tax despite the higher headline rates.
Employees under the graduated system cannot choose the 8% option — only self-employed individuals and professionals can elect it. Mixed income earners apply graduated rates to their compensation and may elect 8% only on their business/professional income component.