By Benjamin Cuaresma
MANILA — The Department of Finance (DOF) is willing to consider cutting or scrapping some taxes, including the value-added tax (VAT), but Finance Secretary Frederick D. Go made clear that any reduction in government revenue must be matched by another source of funding.
“My categorical position on any tax removal is: I am not opposed to any tax removal for as long as a replacement revenue source is identified,” Go said during a budget hearing.
Go stressed that the government still has to finance a P7.2-trillion national expenditure program, making it difficult to eliminate taxes without identifying alternative revenues.
His statement came after Party-list Rep. Sarah Jane I. Elago pressed the government on proposals to reduce or remove VAT to cushion consumers from soaring fuel prices.
Elago also asked whether the excise-tax exemption could be expanded to other petroleum products after the Development Budget Coordination Committee exempted only liquefied petroleum gas and kerosene.
She pointed to the continuing pressure on low-income families, noting that minimum wages in seven regions remain below the estimated P480-a-day poverty threshold for a family of five outside Metro Manila.
“This is concerning because it means that one breadwinner is not enough to support a family of five,” Elago said.
Go defended the government’s VAT framework, saying the statutory rate is 12% but the effective rate is only about half because of numerous exemptions.
Tax expert Raymond “Mon” Abrea, however, said the Philippines continues to impose one of Southeast Asia’s highest VAT rates while collecting far less efficiently than its regional neighbors.
VAT collection efficiency is estimated at only 35% to 40%, compared with about 57% across ASEAN, Abrea said.
“That tells us the bigger problem is not the tax rate, but leakages and weak collection efficiency,” he said.
The government expects VAT and related sales-tax collections to reach P762.42 billion this year, up from P679.64 billion in 2025. The 2027 target is even higher at P860.03 billion.
DOF Undersecretary Rolando Ligon said stronger infrastructure spending and a projected economic rebound could boost transactions and, consequently, VAT collections.
“If you spend on infrastructure, you will create jobs and that will help the economy,” Ligon said.
Abrea warned that meeting the government’s revenue targets should not depend simply on forcing consumers to spend more.
He said stronger collections should instead come from completing e-invoicing, real-time sales reporting, data matching and risk-based audits.
“Our policy priority should be to raise VAT efficiency before raising taxes,” Abrea said, calling for better use of artificial intelligence and integrated data to detect underreporting and collect taxes already required by law.
“The Philippines does not need higher VAT. It needs a more efficient VAT system,” he added.
Go separately said the DOF would study a proposal for a 1% billionaire’s tax for every P1 billion in taxable income, signaling that the government is also examining new revenue sources as it weighs possible tax relief.
The proposal would be separate from wealth-related measures already being considered under the DOF’s tax reform package.
These include a proposed 75% automobile excise-tax tier for vehicles priced above P8 million and a five-percentage-point increase in taxes on nonessential goods.
The emerging debate places the government in a difficult fiscal balancing act: ease the tax burden on consumers without weakening the revenue base needed to fund a P7.2-trillion national budget.
For the DOF, the message is clear—tax relief remains possible, but the money to replace lost revenues must come from somewhere.
ia/xf
