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Finance Secretary Ralph G. Recto has withdrawn the Department of Finance’s (DoF) proposal to increase capital gains tax, donor’s tax and estate tax, citing higher revenue collections in the first quarter.

At the same time, Mr. Recto in a statement on Tuesday said that the government is not seeking to impose new taxes or revenue measures amid the government’s “robust fiscal position.”

“The government is properly managing its finances, ensuring that public needs are met without burdening the citizenry with new taxes,” he said. “At the same time, the DoF will continue to explore and strengthen nontax revenue sources to meet the revenue targets.”

In a letter to House Ways and Means Committee Chairperson and Albay Rep. Jose Ma. Clemente S. Salceda, Mr. Recto said the DoF is no longer pushing for the proposed amendments to the Capital Markets Efficiency Promotion Act (CMEPA) “which primarily sought to introduce measures that would secure our path to fiscal consolidation.”

“The Department respectfully requests to withdraw consideration thereof in view of the better-than-accepted revenue performance during the first quarter of the year,” he said.

Mr. Salceda’s office provided a copy of the letter to the media.

The DoF had previously urged legislators to replace the CMEPA with the Government Revenues Optimization through Wealth Tax Harmonization (GROWTH) bill.

Under its draft GROWTH bill, the DoF proposed to temporarily increase the rates of capital gains tax on real property, donor’s tax, and estate tax to 10% from 2025 to 2030. These rates will be reduced to 6% starting 2031.

The DoF had estimated this could yield around PHP 300 billion in revenues.

In the letter to Mr. Salceda, Mr. Recto said the proposed tax hikes were only intended as a buffer for higher government spending during “times of crisis and to provide the government with fiscal space in the worst-case scenario.”

“With double-digit growth in tax collection, the government is well on track in meeting its fiscal consolidation goals,” Mr. Recto said.

According to the DoF, total tax collections jumped by 13.55% to PHP 931.5 billion in the first three months of 2025, citing stronger tax administration and enforcement.

The Bureau of Internal Revenue’s (BIR) collections jumped by 16.67% to PHP 690.4 billion as of end-March. Revenues generated by the Bureau of Customs (BoC) rose by 5.72% to PHP 231.4 billion.

“This was primarily due to both revenue agencies’ continued success in strengthening tax administration, digitalization, and enforcement efforts,” the DoF said.

This year, the government is projecting to collect PHP 4.64 trillion in revenues. Of this, PHP 3.23 trillion is expected to come from the BIR and around PHP 1.1 trillion from Customs.

Mr. Recto said the National Government’s (NG) revenue levels are “more than sufficient to support the expenditure requirements.”

The government is also managing its deficit and debt levels, he added.

The government’s deficit ceiling is capped at 5.3% of gross domestic product (GDP) this year. It is seeking to bring this down further to 3.7% by 2028.

The International Monetary Fund  earlier said that the Philippines has space to further enhance its tax efficiency, particularly in excise taxation, value-added tax and tax incentives.

Latest data from the DoF showed that the NG’s revenues as a share of GDP reached 16.72% in 2024, up from 15.73% in 2023.

However, the DoF’s withdrawal of its proposed tax hikes is considered moot since the CMEPA was already ratified by Congress last February. The bill is set to be transmitted to Malacañang for the President’s signature.

“Raising these taxes could have risked discouraging property transactions, capital mobility, and intergenerational wealth transfers, which are crucial for sustaining domestic consumption and investment,” John Paolo R. Rivera, a senior research fellow at the Philippine Institute for Development Studies, said in a Viber message.

The government should carefully evaluate which tax measures to implement, ensuring they do not result in revenue losses while maximizing potential gains for the state, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

Mr. Salceda said the government should pursue taxes on luxury goods if it wants to generate additional revenues. 

“That is a better tax on the wealthy,” he said.

Nixing the proposed hike on capital gains tax was a disappointing move, as it could have been a “small step” towards taxing wealthy Filipinos, Jose Enrique “Sonny” A. Africa, executive director of think tank Ibon Foundation, said in a Viber message.

“Keeping the lower rates on capital gains, donor’s and estate taxes reinforces fiscal inequity to favor the wealthy,” he said. — Kenneth Christiane L. Basilio, Reporter with Luisa Maria Jacinta C. Jocson

State spending on infrastructure rose by 23.1% in the first two months of 2025, as the government ramped up disbursements for public works projects ahead of the election ban, the Department of Budget and Management (DBM) said.

In its latest disbursement report, the DBM said spending on infrastructure and other capital outlays jumped by 23.1% to PHP 148.3 billion as of end-February from PHP 120.5 billion in the same period last year.

“The robust infrastructure spending outturn was mainly credited to the disbursement performance of the Department of Public Works and Highways (DPWH),” it said.

The DPWH completed carryover infrastructure projects, as well as made payments for right-of-way settlements and emergency and disaster-related civil works. It also logged higher contractor billings and expedited the processing of accounts payable.

The Budget department said some of the DPWH projects included construction and maintenance of roads, bridges, flood control structures and multi-purpose buildings.

“Furthermore, the direct payments made by development partners for progress billings of ongoing foreign-assisted projects of the Department of Transportation, such as the North-South Commuter Extension Project, South Commuter Railway Project, Davao Public Transport Modernization Project, as well as the DPWH for its Pasig-Marikina River Channel Improvement Project, helped sustain the strong infrastructure and other capital expenditure performance during the first two months of the year,” it said.

Data from the DBM showed overall infrastructure disbursements, which include infrastructure components of subsidy/equity to government corporations and transfers to local government units, jumped by 19.3% to PHP 182.9 billion in the January-to-February period from PHP 153.4 billion a year ago.

Total NG disbursements as of end-February jumped by 13.8% to P822 billion, mainly due to faster infrastructure spending and allotments to local government units.

“Disbursements for March 2025 likely improved significantly as line agencies were expected to have utilized their remaining cash allocations that have been fully credited during the first quarter of the year. Non-utilization would let the cash allocations lapse on the last working day of the quarter,” the DBM said.

It noted that agencies were expected to have accelerated disbursements ahead of the election ban on the release of public funds that started on March 28.

“Spending for April 2025 is expected to temporarily slow down as the election-related prohibition might impede the implementation of some programs and projects,” the DBM said.

However, the department noted that disbursements will likely pick up in the latter part of May to June after the election ban is lifted.

The midterm elections are scheduled for May 12.

The DBM noted that Commission on Elections had exempted some key infrastructure projects, as well as some major health, housing, agriculture, education and labor sector programs, were exempted from the election ban.

Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort noted the government accelerated the progress of infrastructure projects ahead of the election ban.

“Completions would serve as metric of achievements especially by incumbent elected officials who will run again and for the groups/parties that they represent,” he said in a Viber message.

Reinielle Matt M. Erece, an economist at Oikonomia Advisory and Research, Inc. said the expected lower infrastructure spending in April is merely “transitory.”

“I see infrastructure spending growing faster this year as (interest) rates are expected to go down, higher fiscal space, and fiscal efforts for growth,” he told BusinessWorld via Viber on Monday.

Mr. Erece said the higher spending can also boost “fiscal efforts to support economic growth amid global uncertainty and faltering demand.”

The government’s infrastructure program for this year is set at PHP 1.538 trillion, equivalent to 5.4% of gross domestic product. – Aubrey Rose A. Inosante, Reporter

The Philippines is more likely to achieve upper middle-income status by 2027, a year later than the government’s target, given the current growth prospects, the World Bank said.

“The more likely scenario is that it will take a couple of years. It won’t be 2026. It’s more likely that it may be 2027,” World Bank Group Lead Economist and Program Leader for the Prosperity Unit for Brunei, Malaysia and the Philippines Gonzalo Varela told reporters on the sidelines of an event on Monday.

“The reasonable scenario is we expect a couple of years. It would take the Philippines a couple of years to pass that upper middle-income threshold.”

The Marcos administration is targeting to achieve upper middle-income status by 2026.

Based on the latest data from the World Bank, the Philippines is currently classified as a lower middle-income country as its gross national income (GNI) per capita was USD 4,230 in 2023. However, this was higher than its GNI per capita of USD 3,950 in 2022.

According to the World Bank’s classification, an economy is considered lower middle-income if the GNI per capita level is between USD 1,146 and USD 4,515, while upper middle-income countries are those that have a GNI per capita of USD 4,516 to USD 14,005. The World Bank typically releases its income classification data every July.

For his part, Department of Economy, Planning, and Development (DEPDev) Secretary Arsenio M. Balisacan said the country is still on track to meet its target of reaching the higher income class by next year.

“Barring major external shocks, and assuming a favorable global trade environment, we are well-positioned to achieve upper middle-income status by 2026,” he said in a speech during the event.

“Nonetheless, we remain acutely aware of the uncertainties that confront the global economy — ranging from systemic risks in economic institutions and technological disruption to environmental challenges.”

However, Mr. Varela said the Philippines would only be able to graduate to the upper middle-income level next year if it is able to deliver an “outstanding growth performance.”

“With our forecast that is just out, it will not be 2026. Does that mean that it cannot be 2026?  No, it can if you deliver much faster growth… we believe that it’s more likely for it to be 2027,” he added.

The World Bank slashed gross domestic product (GDP) growth forecasts for the Philippines this year and next year amid uncertainty and the looming global slowdown. Philippine GDP is now expected to expand by 5.3% this year and by 5.4% in 2026, well below the government’s 6-8% target for both years.

Mr. Varela said the Philippines needs to ensure sustained growth of per capita income.

“Given the rates of growth that we have been seeing and given the conditions of the domestic economy and the global economy, under reasonable scenarios, we think that in the next couple of years, this is feasible for the Philippines to achieve,” he added.

The Philippines will also need to implement key reforms to hurdle its current income class and sustain the growth needed to remain in the upper middle-income level.

Mr. Varela cited the amended Public Service Act, which allows full foreign ownership in key public services like telecommunications, airlines and railways.

“On paper, it has been passed. But there are a number of actions that need to be taken so that its full implementation happens. That is something that is going to create a lot of opportunities for investment and for productivity growth.”

He also noted reforms that will simplify regulations to make it easier for foreign players to enter the country.

“For a foreign firm, it takes 106 days for a foreign firm to be registered in the Philippines. That is substantially more than what we see in the rest of the world.  In Singapore, it takes about 10 to 15 days,” Mr. Varela added.

He noted these reforms will help the Philippine economy growing “past the threshold.”

Impact of US Tariffs

Meanwhile, Mr. Varela also cited the impact of the tariff policies on the country’s growth outlook.

“The Philippines is a small open economy. As a small open economy, what happens in the rest of the world matters for the Philippines,” he said.

“An increase in global uncertainty is going to be detrimental for the Philippines’ growth prospects. It will likely affect exports, and it will affect investment. Investment is heavily affected by policy uncertainty.”

The United States slapped a 17% reciprocal tariff on the Philippines in early April but paused this policy for 90 days. However, the baseline 10% tariff remains in effect.

As global uncertainty weighs on investment, Mr. Varela said doubling down on domestic reforms will help support growth.

“That’s why I was mentioning streamlining regulations, so that you reduce the costs of foreign and domestic investment in the Philippines. It’s something that is going to help offset that.”

These reforms should also make logistics cheaper, which is crucial for the Philippines, being an archipelagic country.

“Reforms that open up the domestic trade, domestic transport sectors. These are reforms that are going to help the economy keep growing, even with global uncertainty increasing,” he added.

Once the country transitions to the next income level, Mr. Varela said there will be many opportunities it can capitalize on.

“For example, after graduation, (though) not immediately, after three consecutive years of keeping that level of income above the threshold of upper middle-income, there are some developed countries that reduce concessions on trade,” he said.

The Philippines being a beneficiary of the EU Generalized Scheme of Preferences Plus (GSP+) could also be affected after it graduates.

“This is why the government of the Philippines has been working with the European Union in negotiating a free trade agreement,” Mr. Varela said.

“That way, the idea there is that while you lose GSP+, you can move into an agreement in which you have an FTA.”

Meanwhile, DEPDev Undersecretary Joseph J. Capuno noted that the transition to an upper middle-income level will entail a “shift in access to resources.”

“As countries move up the income ladder, eligibility for concessional financing and access to traditional official development assistance begin to diminish,” he said at the same event.

“With this, new priorities arise — necessitating stronger domestic institutions, heightened international cooperation, more sophisticated mechanisms for managing debt and raising revenue, provision of innovative solutions, and a renewed focus on effective financing for development.”

Mr. Capuno said there is a need to adopt new frameworks for sustainable development and establish more and stronger partnerships.

“Improving coordination among development partners can better harmonize support to the country. This means working together to design strategies that support transitions of middle-income countries (MIC) to a higher income threshold.”

The government will implement reforms in its Medium-Term Fiscal Framework 2022-2028 as it prepares to transition to an upper middle-income economy, Mr. Capuno said.

This will “rebuild fiscal space and improve credit ratings, emphasizing the government’s commitment to fiscal consolidation and debt sustainability.”

“We also underscore the importance of technical and financial assistance that international organizations and financial institutions can extend to MICs to assist in the formulation of sound revenue and tax policies and strengthen capacity for tax collection and revenue generation,” he said.

Country partnership

Meanwhile, the World Bank is currently in the process of preparing its new country partnership framework for the Philippines.

“The Philippines remains a very important country for the World Bank. Our partnership with the Philippines is extremely important… that partnership is going to turn 80 this year,” Mr. Varela said.

The framework, which will cover 2025 to 2031, is set to be finalized and released by the end of June.

“We are thinking of around three main outcomes that have to do with improving quality and access to human capital. That has an element related to education, but also an element related to nutrition and health,” Mr. Varela said.

Meanwhile, the second outcome is related to job creation in the private sector, while a third outcome involves resilient communities.

“We are expecting the Philippines to become an upper middle-income economy within the time frame of that framework,” Mr. Varela added. – Luisa Maria Jacinta C. Jocson, Senior Reporter

The  Philippines expects to close a favorable deal with the United States, the presidential palace said on Monday, as key officials travel to Washington on April 29 to negotiate the 17% reciprocal tariff imposed by President Donald J. Trump as part of a global trade war that puts economic growth, jobs and wages at risk.

Trade Secretary Ma. Cristina A. Roque on Monday said the Philippine delegation will aim to bring down the US tariff rate on Philippine goods to zero.

“Of course, we’ll aim for zero tariff. But it depends on what they tell us. Because in every negotiation, there’s always the other side, right?… It’s either we get it in one go or like other countries, [go through] negotiations,” she told reporters.

Presidential Communications Office Undersecretary Clarissa “Claire” A. Castro said Special Assistant to the President for Investment and Economic Affairs Frederick D. Go had instructed them to wait for the dialogue’s outcome.

“His instructions were to just wait and see what the outcome of the talks and negotiations would be,” she said in Filipino during a news briefing at Malacañang.

She did not elaborate on the country’s negotiation strategy or the level to which they hope to bring down the 17% tariff rate.

“Let’s just see what’s good for the Philippines and for our relationship with the US,” she said.

Ms. Roque and Mr. Go will be in Washington from April 29 to May 2 for tariff talks with the US Trade Representative.

Ms. Roque said the Trade department’s strategy is to offer enhanced market access to key US exports to the Philippines such as automobiles, dairy products, frozen meat, and soybeans.

“In any negotiation, we cannot just take and take… But when we get into a negotiation, we’ll always try to protect what’s here. It’s useless to negotiate if we kill (our own industries),” she said.

However, Ms. Roque said they will prioritize local industries despite their openness to improve market access for US goods.

“When we go there, we first have to protect the interests of the people here… Because it has to be win-win for all. We cannot have a scenario where one sector wins over the others,” she added in mixed English and Filipino.

The US imposed a 17% tariff on the Philippines, although this has been suspended until July. It was the second lowest in Southeast Asia, after Singapore.

“Of course, we expect that in one go we can already get what we want because we’re starting at a low percentage, not like other countries. And we also have good relations with the US, so we’re hoping that it would not be a problem for them to lower the tariff,” she said.

Asked if the Philippines should wait for the outcome of other countries’ negotiations, Ms. Roque said the Philippine delegation is ready for the meeting.

“Let’s wait until we get there. This is a negotiation. They also need the market. Remember, the Philippines is big, and we have a good relationship with the US. And then just by looking at our tariff, which is already low, it says a lot of things also,” she added.

Sought for comment, Josue Raphael J. Cortez, a diplomacy lecturer at De La Salle-College of St. Benilde, the Philippines may leverage its chairmanship of the Association of Southeast Asian Nations (ASEAN) in 2026 during the trade talks.

He said the US may maximize this opportunity to gain further solid ground within the regional market vis-à-vis China.

“With the US as the region’s largest source of foreign direct investment, we can further expand our regional partnership — the Trade and Investment Facilitation Agreement,” he said in a Facebook Messenger chat.

The Trade and Investment Framework Agreement, signed in 2006, aims to further partnership between the US and ASEAN, collectively the world’s fifth-largest economy.

Mr. Cortez said the Philippine delegation may successfully negotiate to lower the 17% tariffs if the US feels it can also gain more flexibility in trade.

“For the negotiation, we can include lower tariffs for US imports from us, such as semiconductors. At the same time, we could also leverage our service providers, like business process outsourcing (BPOs), who comprise an integral part of both the country’s and the US’ service sectors,” he said.

A US-Philippines free trade agreement is “undoubtedly the most viable way,” he added.

However, IBON Foundation Executive Director Jose Enrique “Sonny” A. Africa called the Philippine government’s offer to further lower tariffs on US goods a capitulation rather than a negotiation.

“It is a surrender of economic sovereignty, dressed up as diplomacy to continue an imagined strong relationship with the US,” he said in a Viber message.

While the US is raising tariffs to protect its economy, Mr. Africa said the Marcos administration is weakening the Philippine economy by continuing to believe in “free trade.”

He warned that further tariff cuts will hurt local farmers and manufacturers and called for a more independent, domestically driven development strategy.

The Philippines should also prioritize protecting its domestic industries and pursue national industrialization, like the US is doing, according to Mr. Africa.

Federation of Free Workers President Jose Sonny G. Matula said the Philippines is gradually building strengths in key policy areas that align with US interests.

In terms of intellectual property, the labor leader noted that the Philippines upgraded its enforcement under the Intellectual Property Office of the Philippines (IPOPHL) and signed several treaties. – Justine Irish D. Tabile and Chloe Mari A. Hufana, Reporters

The Semiconductor and Electronics Industries in the Philippines Foundation, Inc. (SEIPI) is hoping to see at least a modest growth in exports this year as more investments are expected to come in amid improved incentives and lower US tariffs.

“We have contracted for two years in a row. Now we have projected flat growth, but we are optimistic that we might see some modest growth,” SEIPI President Danilo C. Lachica told reporters on the sidelines of an event on Friday.

“It could be a single-digit growth, maybe 1-2% growth, just not flat,” he added.

Electronic products were the top commodity export of the Philippines last year, accounting for 53.4% of its total exports.

In 2024, the Philippines exported USD 39.1 billion of electronic products, down 6.7% from USD 41.91 billion a year prior.

Mr. Lachica said that the sector is quite optimistic this year as there is growing interest from foreign firms to locate in the Philippines due to the Corporate Recovery and Tax Incentives for Enterprises to Maximize Opportunities for Reinvigorating the Economy (CREATE MORE) Act.

“There was a lot of interest because CREATE MORE is a big upgrade… but the first thing to overcome is if the country we will go to knows about the Philippines, so we have to advertise our country,” he said.

“And then the second thing is… we need to show improvements in our operating costs, whether that is power or logistics.”

However, he said even if investments are much higher, it will not translate to an increase in manufacturing exports immediately.

“But the good thing is, you’re fueling the growth engine with these investments, which will eventually generate employment and generate the supply chain. So, we’re looking forward to that,” he added.

At the same time, Mr. Lachica said that the 17% tariff rate to be imposed by the US could encourage some companies in other countries with higher tariffs to look at the Philippines for expansion.

Philippine exports to the US face a 17% tariff, the second lowest among Association of Southeast Asian Nations (ASEAN) member countries after Singapore’s baseline rate of 10%. The higher tariff has been suspended until July.

“While we’re enjoying that sweet spot, what’s concerning is the intrinsic value of our exports. We’re in the back-end assembly test and packaging. That’s why my hope is to see a commercial wafer fab,” he said.

SEIPI previously proposed to the government the establishment of a lab-scale wafer fab, which is estimated to cost around USD 10 million.

“A lot of people still believe that we do not need a wafer fab… Our proposal is a tabletop wafer lab [because] we are trying to grow our integrated circuit design industry,” he said.

“We need a government agency to help us out, someone who understands. And then, it’s going to be a combination of government funding and bank funding,” he added.

According to Mr. Lachica, SEIPI will be sending a proposal to the Department of Science and Technology as early as the end of May.

While the 17% tariff is lower compared with those imposed on other ASEAN members, Mr. Lachica said the Philippines should still negotiate a lower rate.

“We want to work on reducing it further. Because… we don’t know if it’s going to remain at 17%. When all is said and done after negotiations, maybe later other countries will even out,” he said. “That’s why we cannot leave anything on the table. We have to take this opportunity sooner rather than later to negotiate.”

Trade Secretary Ma. Cristina A. Roque and Special Assistant to the President for Investment and Economic Affairs Frederick D. Go will be in Washington from April 29 to May 2 for tariff talks with their US counterparts.

Mr. Lachica said the Philippines will have to tread carefully as the electronic sector imports 30% of its raw materials from China.

“If China is slapped with an exorbitantly high tariff, then their form of retaliation might be holding back on materials that they export. For example, the rare earth and rare metals, already one of our members cannot get their supply of magnets,” he said.

“So, if this escalates, the 30% we import from China might be severely impacted,” he added.

If it happens, he said that the Philippines will have to develop other sources.

Aboitiz InfraCapital Head of Economic Estates Rafael Fernandez de Mesa said that the tariffs will bring uncertainty and volatility, which could be “good for the Philippines.”

“Why do I think it’s good? Because as a business, you are trying to manage that risk and that volatility, and in an industrial sector where it’s really a global landscape, you need to have your risk diversified, and that’s where the Philippines comes into play,” he told a panel discussion.

“In a world of uncertainty and volatility, I think there’s going to be more movement towards the Philippines. That’s what we’re starting to see over the month and a half: renewed and more accelerated interest,” he added. – Justine Irish D. Tabile, Reporter

Monetary board (MB)  approvals for public-sector foreign borrowing more than doubled in the first quarter, the central bank said.

Data from the Bangko Sentral ng Pilipinas (BSP) showed approved public-sector foreign borrowing soared to USD 6.29 billion in the first quarter from USD 2.87 billion in the same period a year ago.

Broken down, the approvals consisted of bond issuances worth USD 3.33 billion, five project loans (USD 1.46 billion) and three program loans (USD 1.5 billion).

“The approved foreign borrowings have medium- to long-term maturities,” the BSP said.

It said the proceeds of the bond issuances will be used to “fund various budget requirements of the National Government (NG), including socioeconomic programs and projects, as well as settlement of maturing financial obligations.”

“The program loans are meant to fund projects on economic development and finance initiatives, while the project loans will fund initiatives in the areas of transportation and infrastructure,” it added.

Under the Constitution, the Monetary Board is required to approve any foreign loan agreements entered by the NG.

The BSP must also approve in principle any foreign borrowing proposals by the National Government, government agencies and government financial institutions before actual negotiations.

The Monetary Board must submit a report of its decision on these applications for loans within thirty days from the end of every quarter of the calendar year.

The central bank said this is in line with its task of “ensuring that the country’s foreign debt remains manageable.”

Latest data from the BSP showed the Philippines’ outstanding external debt rose by 9.8% to USD 137.63 billion as of end-December 2024 from USD 125.39 billion a year ago.

This brought the external debt-to-gross domestic product (GDP) ratio to 29.8% at the end of 2024, higher than the 28.7% at end-2023.

The NG’s gross borrowings rose by 4.92% to PHP 213.14 billion in January from PHP 203.15 billion a year prior, latest Treasury data showed.

Of this, gross external debt dipped by 1.14% year on year to PHP 60.94 billion in January. This consisted of program loans (PHP 56.29 billion) and project loans (PHP 4.65 billion).

This year, the government’s financing program is set at PHP 2.545 trillion, where 20% will be sourced from foreign sources. The Finance department is seeking to gradually adjust the borrowing mix to rely less on external borrowings to mitigate foreign currency risk. — Luisa Maria Jacinta C. Jocson