Finance chief Recto bucks lowering of VAT

Finance Secretary Ralph Recto is cold on proposals to slash the Philippines' value-added tax (VAT), saying this could hurt the government's financial muscle and compel it to borrow more funds.

In a statement on Thursday, Recto said lowering VAT might "lead to massive revenue losses, resulting in less public services, and may force the government to borrow even for basic operations, such as personnel salaries."

The Finance chief said the entire VAT collection for 2025 of P1.39 trillion "can only fund nine months' worth of payroll, premium, and pension of active and retired government workers."

Moreover, the P576 billion in total excise tax collections would be insufficient to fund the combined P965-billion budget for basic, tertiary, and technical-vocational education programs, according to Recto.

Bills filed on VAT

Last month, Batangas First District Representative Leandro Leviste filed House Bill 4302, or the proposed VAT Reduction Act of 2025, which would bring the VAT rate on goods and service to 10% from 12%.

Leviste's proposal, nonetheless, allows the President, upon the recommendation of the Department of Finance and the Development Budget Coordination Committee (DBCC), to temporarily restore the VAT rate to 12% if the government's deficit target exceeds projections.

Meanwhile, Cavite 4th District Representative Francisco "Kiko" Barzaga filed House Bill 5119 which proposes an outright scrapping of the 12% VAT. 

More revenues needed

Recto, however, said that to ensure a reliable revenue stream, the government's tax revenues need to grow by 10.2% annually from 2025 to 2028, pushing total revenues to hit nearly P6 trillion by the end of the President's term. 

By 2030, total revenues will breach the P7 trillion mark. 

The DOF, the Finance chief said, has also maximized non-tax revenues by increasing the government-owned or -controlled corporation's (GOCCs) dividend remittances and privatizing more idle government assets to raise more resources without imposing new taxes. 

In 2024, the Finance Department and its attached agencies collected a record P4.42 trillion in revenues to support the government's P5.925 trillion expenditure—equivalent to 16.7% of gross domestic product (GDP).

Recto said the department collected roughly P12.10 billion a day in 2024 to support the P16.23 billion daily expenditures of the government. 

Where the money went

The Finance chief said state revenues funded, among others, the education of 24.54 million public school students, provided medical assistance to approximately 6.4 million patients in public hospitals, and supported P871.38 billion in local government funding. 

For this year, the DOF is tasked to collect P13.65 billion a day in revenues to plug the P4.51-billion deficit per day to support the P18.61-billion daily spending of the government.

Over the past three years, Recto said, revenue collections have grown by double digits, averaging 13.8% annually, as a result of the Bureau of Internal Revenue (BIR) and Bureau of Customs (BOC) enhanced tax administration efforts through digitalization, stricter enforcement, and closing leakages.

The Finance chief said that over the medium term, government's revenue collections will be bolstered by increased administrative efficiency from the BIR and BOC, through continuous modernization and digitalization, robust non-tax revenues, the proposed General Tax Amnesty, and the extension of the Estate Tax Amnesty. 

With higher government revenue collections and improved expenditure management, Recto said the government's fiscal deficit dropped from the pandemic high of 8.6% in 2021 to 5.5% in 2025 and down to about 4% by 2028. 

It will further drop to around 3% by 2030.

The Finance chief said that if the government strictly adheres to its refined fiscal program and maintains disciplined and efficient spending, the size of the Philippine economy is projected to reach P42.6 trillion by 2030, while keeping debt at P24.7 trillion, equivalent to 58% of GDP. 

"We fund the nation's progress and bring us closer to our Ambisyon 2040—a prosperous middle-class society, where poverty is eradicated," Recto said. — VDV, GMA Integrated News