THE PHILIPPINES could lower the value‑added tax (VAT) rate to 6-8% if exemptions are removed, which poses a dilemma for the government, which must ensure the categories losing their exemptions can still afford basic needs, analysts said.
Raymond Abrea, chairman and chief executive officer of the Asian Consulting Group, said the exemptions could be removed for everything except agricultural products in the interest of lowering the 12% VAT rate, the highest in Southeast Asia.
“I agree. Reduce it even to 6%. Reduce the rate from 12% down to 8% but remove the exemptions,” he told the Pandesal Forum at the Kamuning Bakery Cafe in Quezon City on Tuesday.
His position was similar to a World Bank recommendation to maintain exemptions for raw agricultural products and medicine.
The Philippines charges 12% VAT on the sale, lease, barter, and import of goods and services. It accounts for around 22% of the Bureau of Internal Revenue’s (BIR) collections.
Philippine collection efficiency is just 35-40%, Mr. Abrea said in his presentation.
“The ASEAN average is 57% collection efficiency. In the Philippines, where there are a lot of smugglers and crooks, it’s 35-40%,” he said.
In comparison, Thailand posts a collection efficiency of 71-79% on its 7% VAT, the lowest rate in the region.
Mr. Abrea also noted that the VAT exemptions of persons with disabilities and senior citizens are also abused, and disproportionately benefit the rich.
Former Budget Undersecretary Cielo D. Magno said removing exemptions to lower the VAT rate must be paired with broader reforms to ensure basic needs remain accessible.
“It’s all connected. If we say no more VAT exemption for medicine, it’s related to the reform that we should have proper health insurance,” she said.
Ms. Magno added that legislators must take a comprehensive view of reform, and not just treat the matter as a tax administration fix.
She also said that raising taxes alone will not resolve fiscal challenges.
“We Filipinos feel overtaxed and underserved,” Ms. Magno said.
Both Ms. Magno and Mr. Abrea supported consolidating the Bureau of Customs (BoC) and BIR into a National Revenue Authority, an independent entity with the power to pursue corrupt politicians.
“We deserve a better tax authority (that is) efficient, proper, honest, and independent politically,” she said.
The government hopes to collect P4.82 trillion in revenue in 2026, with P3.431 trillion expected from the BIR and P1.003 trillion from the BoC.
Ms. Magno added that while a proposed wealth tax is conceptually sound, enforcement would be challenging.
“The rich have the ability to hide their wealth and most of that wealth is not in the Philippines… That’s why it’s so important for… international cooperation to trace where the wealth is,” she said. — Aubrey Rose A. Inosante
