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Manila Bulletin devider Business devider The Economy devider Recto: VAT cut could force gov't to borrow even for basic salaries

Recto: VAT cut could force gov't to borrow even for basic salaries

Published Oct 16, 2025 03:37 pm

At A Glance

  • President Marcos' chief economic manager said that reducing the current 12-percent value-added tax (VAT) rate could weaken the government's ability to fund operating expenses, such as personnel wages, since it would mean cutting tax collections.
President Marcos’ chief economic manager stated that reducing the current 12-percent value-added tax (VAT) rate could weaken the government’s ability to fund operating expenses, such as personnel wages, as it would result in lower tax collections.
Finance Secretary Ralph G. Recto said in an Oct. 16 statement that “proposals to lower the VAT rate lead to massive revenue losses, resulting in fewer public services, and may force the government to borrow even for basic operations, such as personnel salaries.”
Even the target ₱1.39 trillion in VAT collections for the entire fiscal year 2025 “can only fund nine months’ worth of payroll, premium, and pension of active and retired government workers.” This means lowering the rate may further thin the fund.
As of the first semester, the Bureau of Internal Revenue’s (BIR) VAT haul increased by 15 percent to ₱338.8 billion from ₱294.6 billion in the same period in 2024.
This double-digit increase was driven by the country’s main tax agency’s “sustained campaign against the use of fake receipts and the digitalization programs, which significantly improved taxpayer compliance,” the Cabinet-level Budget Development Coordination Committee (DBCC) said in its recent report.
For the full year, the BIR is expected to collect ₱796.9 billion from VAT, climbing to ₱1.3 trillion by 2028.
Meanwhile, the Bureau of Customs (BOC) raked in ₱288.4 billion as of end-June, up 5.2 percent from ₱274.2 billion in the same period last year. The second-largest tax collection agency is projected to generate ₱589.5 billion from VAT on imports in 2025, with collections reaching ₱695.77 billion by 2028.
As of end-July, the Department of Budget and Management (DBM) disbursed a total of ₱655.8 billion for maintenance and other operating expenses (MOOE). This was 15 percent higher than last year’s ₱570.4 billion.
Notably, the end-July disbursements stood at 27.6 percent of the ₱2.38 trillion program.
Recto earlier said that the proposal to trim the VAT rate could hurt the country’s credit rating. It would erode government revenue collections, which the Department of Finance (DOF) estimates would drop by an average of ₱300 billion annually.
Such a revenue loss “will surely impact your credit rating,” Recto said.

Related Tags

Department of Finance (DOF) Finance Secretary Ralph G. Recto value-added tax (VAT)
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