The Department of Trade and Industry (DTI) is studying the potential reduction of value-added tax (VAT) and introducing more fiscal support to enhance the cost competitiveness of local garments.

Trade Secretary Cristina Roque said local garment manufacturers and exports have been complaining to the DTI about the rising costs and tighter global competition in the global market.

Roque said this was why she recently held a dialogue with the local industry to address its concerns and reaffirm its position as a major source of employment in the country.

She noted that one of their proposals is to reduce the VAT to levels comparable to that of neighboring countries in Southeast Asia, where companies face significantly lower taxes, leading to lower costs.

The Philippines’ 12-percent VAT rate is the highest in the region.

In contrast, Thailand imposes only seven percent, Singapore at nine percent for its goods and services tax, Malaysia at 10 percent for sales tax and eight percent for service tax, while Indonesia levies 11 percent, charging 12 percent only on certain luxury goods.

The garment industry is also requesting expanded fiscal support for existing firms and subsidiaries to further enhance their competitiveness by keeping their products relatively affordable.

While these recommendations are being studied, the DTI said garment companies could harness the incentives embodied under the CREATE MORE Act.

Under this law, new projects or registered subsidiaries of existing garment firms may avail of a 100 percent deduction on power-related expenses and a 50 percent deduction on direct labor costs.

Export-oriented companies may also qualify for VAT exemption if at least 70 percent of their sales are exported.

In addition, Roque said the government is taking a more concerted effort to help the garment industry meet shifting buyer requirements by advancing technology adoption.

“I received direct feedback from buyers abroad that automation is no longer optional, it has become a baseline requirement in the global market,” said Roque.

“They expressed a clear preference for exporters with modern, automated production equipment, as short lead time is now the deciding factor, especially for fast-fashion brands,” she added.

In line with this, the DTI is planning to work with Land Bank of the Philippines and the Development Bank of the Philippines (DBP) to grant flexible financing for automation, machinery, and production equipment.

For now, companies may avail of incentives under the Board of Investments (BOI) and the Philippine Economic Zone Authority (PEZA) to support their mechanized production.

The DTI is also working to address the industry’s workforce capability with the Technical Education and Skills Development Authority (TESDA) through training programs aimed at increasing skilled sewers and machine technicians.

To expand market access, the DTI said garment manufacturers may coordinate with the Foreign Trade Service Corps’ trade attachés to identify priority export markets and engage with foreign buyers and global trading companies.