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The Department of Finance (DoF) expressed “strong reservations” regarding a proposal to lower the value-added tax (VAT) rate, warning it could cost the government more than PHP 1 trillion in foregone revenues through 2030 and undermine its fiscal consolidation efforts.

In a position paper submitted to the House of Representatives dated Oct. 22, the DoF said House Bill (HB) No. 4302, which proposes to cut the VAT rate to 10% from the current 12%, would lead to substantial revenue losses over the next five years.

A copy of the position paper, which was signed by then-Finance Secretary Ralph G. Recto, was obtained by BusinessWorld on Thursday.

“The estimated impact of the proposed VAT rate reduction is at an annual average of PHP 339 billion from 2026 to 2030… This proposal will translate to a higher fiscal deficit and derail the administration’s fiscal consolidation efforts and plan,” the DoF said.

“Introducing this proposal at this time would risk fiscal stability, equity and growth.”

Based on DoF estimates, the revenue impact of the proposed VAT rate reduction would reach a total of PHP 1.694 trillion from 2026 to 2030. This includes PHP 1.11 trillion in foregone revenues for the Bureau of Internal Revenue and PHP 583.6 billion for the Bureau of Customs.

The DoF said reducing the VAT rate to 10% will increase the deficit by one percentage point of gross domestic product annually.

“The proposal will result in credit rating downgrades, which in turn increase our borrowing costs due to higher interest rates,” it said.

The proposed measure will also compromise debt sustainability, the DoF said.

“Lowering the VAT rate and losing a steady stream of government revenues of around PHP 339 billion yearly would significantly slow down the pace of reduction in the debt ratio planned by the government, leaving the country more vulnerable to fiscal shocks,” it said.

The Philippines has imposed VAT on most goods and services since 1988, including essentials such as food and fuel. Raised to 12% from 10% in 2005, it has become a key revenue source, though critics have argued it disproportionately burdens working-class Filipinos.

The DoF said VAT is an important revenue source for the government, accounting for around 26.5% of total tax take and 29.9% of government revenues.

“VAT, as a consumption tax, grows in tandem with the economy, making it one of the most predictable sources of government revenue and, at the same time, one of the most difficult to evade,” the DoF said.

Batangas Rep. Leandro Antonio L. Leviste filed HB No. 4302 in September seeking to lower the VAT rate, arguing the current tax system is “regressive” and should be reduced to make taxation more progressive.

The DoF said the current VAT system is “relatively neutral and slightly progressive” as most of the goods and services purchased and consumed by poorer households are already not subject to VAT.

“The proposed reduction of VAT will benefit higher-income households who have a larger share in formal consumption,” it said, explaining that lower‑income families tend to have only “small shares” of spending subject to the tax. “The richer households will substantially benefit more than the poorer households.”

While the Philippines has the highest VAT rate in Southeast Asia, the DoF said that a reduction in the rate will not automatically make the VAT system more competitive. It noted the Philippines has the lowest VAT efficiency in the region as it provides a significant number of VAT zero-ratings or exemptions to some sectors.

The DoF said the bill is not an “anti-inflation tool” and won’t automatically lower consumer prices.

It also noted that the bill’s provision giving the President the authority to temporarily return the VAT rate to 12% will disrupt the National Government’s fiscal program.

“The proposal will erode revenue stability and predictability… Making (the VAT) rate dependent on the yearly deficit projection of the Development Budget Coordination Committee would mean uncertainty for revenue and cash programming, budget planning and investors’ decisions,” it said.

“The proposed VAT rate increase based on the deficit target breach would also mean business and consumers facing unpredictable tax burdens, higher compliance costs and deterring long-term investments,” it added.  — Kenneth Christiane L. Basilio, Reporter

The Philippine government has collected almost PHP 7 billion from a 12% value-added tax (VAT) on digital services, the Department of Finance said, providing a lift to revenue intake at a time when slower growth and a corruption probe are weighing on collections.

The Bureau of Internal Revenue (BIR) has raised PHP 6.57 billion since the digital VAT took effect in June, based on a document obtained by BusinessWorld.

Of the total, the BIR collected PHP 2.78 billion from nonresident digital service providers as of Oct. 23. 

Meanwhile, final withholding VAT from business-to-business transactions reached PHP 3.79 billion as of Sept. 25 — almost entirely from foreign platforms — with PHP 3.77 billion remitted by private withholding agents and PHP 5.85 million by government agencies,

Under the law, a 12% VAT is now imposed on nonresident digital platforms such as Netflix, Spotify, Amazon and Lazada.

“It likely reflects higher digital consumption in e-commerce, streaming, and online services, improved compliance from platforms now formally registered with the BIR, and tighter monitoring of cross-border service providers,” John Paolo R. Rivera, a senior research fellow at the Philippine Institute for Development Studies, said in a Viber message.

Mr. Rivera noted the tax haul shows the digital economy is becoming a meaningful source of government revenue and is now being treated on par with traditional industries.

“The shift toward cashless payments and online transactions also made digital activity more traceable,” he said.

Former BIR Commissioner Romeo D. Lumagui, Jr. earlier projected the agency will collect PHP 10 billion in VAT from digital services this year, well above the initial PHP 3.62‑billion target.

For 2026, the Marcos administration seeks to collect a PHP 21.37-billion revenue from digital VAT. It is targeting PHP 22.81 billion in digital VAT collection in 2027 and PHP 23.41 billion in 2028.

Analysts said the BIR is on track to reach PHP 10‑billion digital VAT target this year, buoyed by rising technology spending and increasing compliance by nonresident platforms.

Eleanor L. Roque, a tax principal of P&A Grant Thornton, said the BIR has already collected PHP 6.57 billion in the early stages, making the PHP 10-billion target “easily achievable.”

“I think there are still nonresident digital service providers who are still going through the compliance process. There are companies that are still waiting for some clarification on whether they are covered,” she said in a Viber message to BusinessWorld on Thursday.   

Ms. Roque noted that initial “birth pains” such as VAT portal delays were quickly addressed by the agency.

“The digital economy may post slower income growth as a result of taxes they paid for the government. However, the industry is still poised for large growth due to higher activity and spending on technology,” Reinielle Matt M. Erece of Oikonomia Advisory and Research, Inc. said in a Viber message.

Mr. Rivera also added that hitting the PHP 10‑billion goal is “still possible.”

“Strong holiday e-commerce activity could lift collections, but hitting the target will depend on sustained platform compliance and continued digital spending despite recent economic headwinds,” he said. — Aubrey Rose A. Inosante, Reporter

Global trade has “responded well” to Washington’s broader relaxation of tariffs, though uncertainty still hangs over the outlook as Manila continues to negotiate the lowering of the 19% reciprocal duty on its exports, the Department of Economy, Planning, and Development (DEPDev) said.

“I think that the global trade in many countries has responded well to the improvement,” DEPDev Secretary Arsenio M. Balisacan told reporters on the sidelines of a Senate hearing on Nov. 18.

“But still, it does not mean that uncertainty has disappeared. It’s still out there.”

The Philippines continues to press for a lower reciprocal tariff even after most of its agricultural exports were exempted under US President Donald J. Trump’s latest executive order, Mr. Balisacan said.

Other goods from the Philippines are still slapped with a 19% reciprocal tariff when they enter the US. However, Mr. Trump’s latest executive order exempted hundreds of agricultural products from the reciprocal tariffs starting Nov. 13.

The Department of Trade and Industry earlier said the latest order meant that over USD 1 billion worth of Philippine agricultural exports are now exempted from the 19% US reciprocal tariff.

Key agricultural exports exempted from the reciprocal tariff include coconut (copra) oil, both crude and other than crude; fruit juices; processed pineapples; desiccated coconuts; prepared or preserved coconuts; bananas, other than pulp; dried guavas, mangoes, and mangosteens; frozen tuna fillets; rice wafer products; and confectionery products.

Mr. Balisacan said the tariff exemption will boost productivity of coconut farmers, as well as strengthen their export capacity. 

Executive Secretary and former Finance chief Ralph G. Recto said the tariff exemptions mark a positive step for Philippine exports and agriculture, adding they could help drive economic growth.

“It’s positive for us. I think President Trump realized that imposing tariffs on agriculture is inflationary, so he removed them. That’s good for us,” he said on the sidelines of a Senate hearing on Nov. 18.

‘Export more’

Meanwhile, the Department of Agriculture (DA) is ready to support Philippine farmers in expanding their exports to the US.

“The path is clear. Now people can plan, invest, and expand. So, that’s good. As far as the DA is concerned, we have to start planting more… so that we can export more to the US,” Agriculture Secretary Francisco P. Tiu Laurel, Jr. told reporters on the sidelines of the 3^rd Philippine Hydro Summit on Wednesday.

Mr. Laurel said the US order has helped calm the anxiety of Philippine exporters of coconuts, bananas and pineapples.

The Agriculture chief said that the 19% US reciprocal tariff, which was implemented starting August, had earlier created uncertainty for the industry.

“But now, everything is clear… The President’s directive was to support all of our export products. And that will be our banner programs for next year,” Mr. Laurel said.

The Philippine Exporters Confederation, Inc. (Philexport) said the exemption of Philippine exports such as coconuts, pineapples, bananas, and mangoes from the 19% US reciprocal tariffs is expected to “improve demand, stabilize prices, and directly benefit exporters, farmers, and rural communities across the Philippines.”

“This is a positive outcome of our sustained collaboration and engagements with key stakeholders and partners to convey the need for certain exemptions and maintain the competitiveness of Philippine exports, especially those products not locally produced in the US,” Sergio R. Ortiz-Luis, Jr., Philexport president and chief executive officer, said.

Philippine Chamber of Commerce and Industry President Enunina V. Mangio said the exemptions provide “much-needed relief to exporters, help safeguard jobs, and strengthen the competitiveness of Philippine products.”

For his part, University of Asia and the Pacific Associate Professor George N. Manzano said the Philippines should continue negotiations with the US for a lower reciprocal tariff.

“However, we are still not better off compared to the period before President Trump introduced those reciprocal tariffs. So, the Philippines should continue negotiating for a reduction of the 19% reciprocal tariff,” he said in a Viber message.

Mr. Manzano noted that the removal of reciprocal tariff does not mean Philippine exports are duty-free, as the original Most Favored Nation tariff will still be applied.

If the US extends the tariff rollback to all trading partners, the Philippines’ relative competitiveness would remain unchanged, he added.

“This US tariff exemption is a game-changer for Philippine exporters. Over USD 1 billion worth of goods — led by coconuts, coffee, cocoa, and processed fruits  —will now enter the US duty-free,” Jonathan L. Ravelas, a senior adviser at Reyes Tacandong & Co., said in a Viber message to BusinessWorld on Wednesday.

He also said the tariff break may offer a chance to scale up value‑added products of farmers and agri‑businesses.

“My advice? Move fast, ensure quality, and lock in supply reliability — this window won’t stay open forever,” he said.

For his part, Foundation for Economic Freedom President Calixto V. Chikiamco said the exemption is “self‑serving,” and would favor the US more than the Philippines.

“It’s meant to lower food prices in the US since affordability has become a hot political issue,” he said in a Viber message on Wednesday.

Meanwhile, Ivan Tan, director and lead analyst for Southeast Asia at S&P Global Ratings, said while the tariff exemption is “good,” the Philippines will unlikely see a significant impact as goods remain a small component of the country’s exports.

“I think the impact will be quite mild,” he said in a webinar on Wednesday. “To start with, the dependence of the Philippines’ economy on export… is low. It’s quite small.”

S&P Global has said the US tariff policies could pose downside risks to economies and financial markets in the Asia-Pacific region.

“There is a high degree of unpredictability around US policy implementation and possible responses — specifically about tariffs — and the potential effect on economies, supply chains, and credit conditions,” it said in its recent Global Banks Outlook 2026 report. — Aubrey Rose A. Inosante, Sheldeen Joy Talavera and Katherine K. Chan

The Bureau of Customs (BoC) is holding the line on its PHP 958.7-billion revenue goal for 2025 despite a sharp drop in imports and fewer working days in October that slowed collections, a stance that keeps pressure on the agency as the government grapples with weaker fiscal inflows.

Customs Commissioner Ariel F. Nepomuceno said the bureau is not giving up on the full-year target even after the total volume of imports fell by 3% or about P80 billion last month, denting duties and taxes.

“I don’t want to give up because we’re already at 98% efficiency,” he told reporters on the sidelines of a Senate plenary debate on the 2026 budget on Nov. 17. “We can still do it if we can in November [and] December.”

The BoC collects taxes and duties from all goods imported to the Philippines.

The Department of Finance earlier warned that Customs, one of the country’s revenue-generating agencies, may miss its full-year targets this year amid slower global trade due to US President Donald J. Trump’s tariff policies.

“We could have hit the target this October if there had been one more working day. Compared to last year, there were more working days… due to the storms,” he said.

The Philippines was battered by back‑to‑back storms, including typhoons Tino and Uwan, which shut businesses, ravaged cities and forced class suspensions in October.

The latest data from the Treasury showed that Customs revenue collection inched up by 1.59% to PHP 701.7 billion in the first nine months, accounting for 73.12% of the full-year target.

Customs has yet to release a breakdown of its October collections.

Despite this, Mr. Nepomuceno said Customs is banking on petroleum imports to help offset weaker revenues as the extension of the rice import ban and slower trade weigh on collections.

“But we’re trying to check if there are other sources that can compensate (for the slower revenues). Like petroleum products, probably we can generate more revenues from that, given that the ban for rice importation has been extended,” he said.

Mr. Nepomuceno warned that foregone revenues from the rice import freeze, expected to last until mid-January, could reach over PHP 6 billion.

He also noted that Customs seized PHP 3.6 billion worth of smuggled goods between July and September.

“The new team accounted for about 50% of total apprehensions in just 90 days. So, there is a sense of hope that we can improve further until we fully digitalize,” he said.

Customs earlier reported the BoC is also looking to enter into a public and private partnership to fully digitalize its operations.

Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said the BoC can still meet its PHP 958.7‑billion revenue goal for 2025 if import volumes rebound.

“Imports could increase as more exporting countries diversify exports away from the US and more for countries like the Philippines amid Trump’s higher tariffs, trade wars, and protectionist policies,” he said in a Viber message. — Aubrey Rose A. Inosante, Reporter

The Bangko Sentral ng Pilipinas (BSP) could cut policy rates again at its December meeting, its governor said on Tuesday.

“I would say it’s possible,” BSP Governor Eli M. Remolona, Jr. told reporters when asked about the likelihood of rate cuts at the Monetary Board’s Dec. 11 meeting.

However, he ruled out a jumbo cut, noting that the next rate cut will likely be another “baby step” or by 25 basis points (bps).

The Monetary Board delivered a 25-bp cut at its Oct. 9 meeting, bringing the benchmark policy rate to an over three-year low of 4.75%, as both its economic outlook and investor confidence weakened amid the flood control corruption scandal. 

It has so far lowered borrowing costs by a total of 175 bps since it began its easing cycle in August 2024.

Another rate cut at the Monetary Board’s last meeting this year on Dec. 11 would mark its fifth consecutive cut since April.

Mr. Remolona said they are still considering whether the weaker-than-expected third-quarter gross domestic product (GDP) growth was due to a slowdown in demand or supply.

“Kung supply side, wala kaming magagawa (If it’s from the supply side, we can’t do anything),” he told reporters on the sidelines of the Financial Education Stakeholders’ Congress 2025 on Tuesday. “So, how much is demand?… We’ll have to figure out how much is demand and how much is supply.”

In the third quarter, the Philippine economy grew by 4%, the slowest growth in over four years, as a corruption scandal weighed on government spending and dampened investor and consumer confidence.

For the nine-month period, GDP growth averaged 5%, below the government’s 5.5-6.5% target for the year.

Meanwhile, the central bank chief said the Monetary Board is still deciding if they would trim banks’ reserve requirement ratio (RRR).

“Pinag-iisipan pa ’yun… Inaayos pa namin ’yung liquidity sa system kung gaano karami, kung sobra-sobra. Kasi pag binaba mo yung reserve requirement dadami pa ’yung liquidity (That is still being considered… We are still fixing the liquidity in the system (to see) how much there is, if it’s excessive. Because if you lower the reserve requirement, liquidity will increase further),” Mr. Remolona said.

In February, the BSP cut universal and commercial banks and nonbank financial institutions with quasi-banking functions’ RRR by 200 bps to 5%. Digital banks’ RRR was reduced by 150 bps to 2.5%, while thrift banks’ RRR was lowered by 100 bps to 0%.

The RRR cuts took effect in the week of March 28.

Also, Mr. Remolona said they are not worried about the peso’s recent movement but noted that they have been intervening a bit in the foreign exchange market.

“Konti lang, para hindi lang magulo masyado (Just a little, so it’s not too messy),” he said.

The BSP chief earlier said they would only intervene if the peso depreciates so sharply that it would become inflationary.

On Tuesday, the local unit weakened to PHP 58.985 against the dollar, slipping by 5.4 centavos from its PHP 58.931 finish on Monday, data from the Bankers Association of the Philippines showed.

On Nov. 12, the peso slumped to a record low of PHP 59.17 versus the greenback. — Katherine K. Chan

The sharp slowdown in government spending tied to the widening flood control corruption scandal is pushing the Philippines to cut its medium-term growth goals, with the Development Budget Coordination Committee (DBCC) likely to trim its 2026 target to 5-6%, Executive Secretary and former Finance Secretary Ralph G. Recto said. 

“Realistically, for next year, it will be from 5-6%. Because we’re coming from a low base,” Mr. Recto told reporters on the sidelines of a Senate hearing on Nov. 17.

“(The growth) will take some time, maybe a quarter, before we can go back to the regular growth rate,” he added.

In June, the DBCC tempered its growth forecast to 5.5-6.5% for 2025 and 6-7% for 2026-2028, mainly due to “heightened global uncertainties” arising from the Middle East conflict and US tariffs.

However, in the first nine months of the year, gross domestic product (GDP) growth only averaged 5% after the weaker-than-expected 4% growth in the third quarter, reflecting the slowdown in public spending and household consumption.

“Our fundamentals are okay. The only thing is to regain the trust and confidence of our consumers, of our businessmen, and the only way we can do that is to show accountability,” he said.

Mr. Recto, who was appointed by President Ferdinand R. Marcos, Jr. as executive secretary on Monday, also hinted that the DBCC could reset growth targets through 2030, as the economy is now expected to grow by 4.7-5.2% in 2025.

The DBCC is set to review its macroeconomic assumptions and targets at a meeting in December, he said.

For his part, Economy Secretary Arsenio M. Balisacan said the DBCC may keep its 6-7% growth target for 2026.

“I think 6% to 7% should be doable next year. But of course, that assumes that we can really address the issues that have faced us and confronted us,” he told reporters on Nov. 17.

Mr. Balisacan said he is hoping for at least 5% GDP growth in the fourth quarter, buoyed by favorable external trade.

“I would not mind our economy slowing down in one quarter, two quarters. As long as that will lead to a stronger economy in the medium term,” he said.

Meanwhile, Mr. Recto said the DBCC may have to stick to its P4.52-trillion revenue target this year, even as growth slows.

“Revenues will get affected a bit. But we’ve already taken care of that for the year. Our deficit will be on target. So, what we will miss is the growth rate, unfortunately. But moving forward, everything will be upside,” he said.

Mr. Recto said the Philippines is still on track to trim the fiscal deficit to 5.5% of GDP this year.

“We’re on target. Whatever our deficit goal is for the year, including debt, we are not borrowing beyond that,” he said.

Corruption cost

The Philippine growth outlook is now being clouded by a corruption scandal involving government officials and lawmakers who have allegedly colluded with private contractors to receive billions of kickbacks from projects.

According to the Department of Finance (DoF), the economic impact of corruption related to the Department of Public Works and Highways (DPWH) flood control projects could have reached between P145.4 billion and P407 billion from 2023 to 2025. This assumes that between 25% and 70% of the DPWH project costs were lost to corruption.

“Given the lower GDP with corruption, there is a foregone employment ranging from 327,000 to 914,000 jobs, for the same period,” the DoF said.

“On average, GDP could have been PHP 48.4 [billion] to PHP 135.7 billion higher every year while generating 95,000 to 266,000 additional jobs annually from 2023 to 2025 if the flood control budget had been properly and fully implemented and utilized (i.e., no corruption),” the DoF said. — Aubrey Rose A. Inosante