Department of Finance (DOF) Secretary Ralph Recto warned on Thursday that proposals to lower the value-added tax (VAT) rate could severely damage government finances, potentially leading to massive revenue losses and increasing the need for additional borrowing.
Recto said in a statement that lowering the VAT rate “may 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 statement follows the filing of two separate proposals in the House of Representatives to reduce or eliminate VAT.
Recto cited the critical role of VAT collections, noting that the entire P1.39 trillion VAT collection projected for 2025 could fund nine months’ worth of payroll, premium and pension for active and retired government workers.
He also pointed out that the P576 billion in total excise tax collections would not be enough to fund the combined P965-billion budget for basic, tertiary and technical-vocational education programs.
Despite the warning on VAT, Recto said the government is funding the nation’s progress and bringing it closer to its “Ambisyon 2040—a prosperous middle-class society, where poverty is eradicated.”
The DOF and its attached agencies collected a record P4.42 trillion in revenues in 2024 with only a P27.94-billion budget.
This figure supported the government’s P5.925 trillion expenditure, which is equivalent to 16.7 percent of GDP and the highest in 27 years.
The DOF collected roughly P12.10 billion a day in 2024 to support the P16.23 billion daily expenditures of the government.
These revenues funded, among other things, education for 24.54 million public school students, medical assistance to about 6.4 million patients in public hospitals and supported P871.38 billion in local government funding.
Revenue collections have grown by double digits over the past three years, averaging 13.8 percent annually, largely due to enhanced tax administration efforts by the Bureau of International Revenue (BIR) and Bureau of Customs (BOC) through digitalization and stricter enforcement.
Recto said revenue collections will be bolstered by increased administrative efficiency, 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, the fiscal deficit dropped from the pandemic high of 8.6 percent in 2021 to 5.5 percent in 2025 and is projected to fall to about 4 percent by 2028 and around 3 percent by 2030.
Recto projects that if the government adheres to its refined fiscal program and maintains disciplined and efficient spending, the size of the Philippine economy will reach P42.6 trillion by 2030, with debt kept at P24.7 trillion, equivalent to 58 percent of GDP.
