Instead of exempting over 130 lines from the 12 percent value-added tax (VAT), Finance Secretary Ralph G. Recto stated he would support the proposal to reduce the number of lines benefiting from exemption to narrow the fiscal deficit.

“I’m one with you,” Recto told senators during the Development Budget Coordination Committee (DBCC) briefing at the Senate finance committee on Tuesday, Sept. 2, when his position on reducing the VAT-exempt lines was sought.

Senator Panfilo Lacson noted Congress has been rallying behind the move to reduce VAT-exempt lines given the necessity of increasing the country's revenue collections to plug the budget hole.

According to Lacson, one major measure that should be pushed is not a reduction in VAT, but a reduction in exemption lines, particularly those that can now be taxed, especially against the backdrop of several lines that have long enjoyed tax holidays.

Among others, Lacson particularly suggested lifting the VAT exemption from cooperatives, the power sector, real estate, and several others.

According to Recto, of the total collections by the country’s tax authorities, the Bureau of Internal Revenue (BIR) and the Bureau of Customs (BOC), VAT only accounts for five percent—not 12 percent—due to several exemptions.

Recent reports indicate that, in nominal terms, the government projects gross domestic product (GDP) to be valued at ₱28.36 trillion this year, ₱30.85 trillion in 2026, ₱33.46 trillion in 2027, and ₱36.3 trillion in 2028.

Recto argued that revenues collected from VAT are only enough to cover government expenses such as employee salaries, maintenance and other operating expenses (MOOE), interest payments on debt, and the national tax allotment (NTA).

He noted that all major capital outlays—including flood control projects, airports, roads, and bridges—are being financed through borrowing.

Borrowings will partly finance a budget deficit of ₱1.65 trillion in 2026, higher in value than this year’s ₱1.56-trillion program, but smaller in share to GDP at 5.3 percent next year versus 5.5 percent this year.

For the first semester, Recto asserted that the country’s deficit remains manageable at 5.7 percent of GDP.

“Our refined fiscal program now charts a realistic path to reduce our deficit and debt, while creating more jobs, raising incomes, and lifting millions of Filipinos out of poverty along the way,” Recto said.