The Department of Finance (DOF) has warned that proposals to lower the value-added tax (VAT) rate could severely impact the government’s ability to fund essential operations, potentially forcing the government to borrow more for even basic expenditures.
Reducing the VAT rate, the DOF said, would deal a blow to the government’s revenue stream as it limits the capacity to sustain vital public services, which include the salaries and benefits of state workers.
‘For instance, the entire VAT collection for 2025 of P1.39 trillion can only fund nine months’ worth of payroll, premium and pension of active and retired government workers,’ the finance department said.
The DOF added that the P576 billion in total excise tax collections would still fall short of covering the P965 billion combined budget allocated for basic, tertiary and technical-vocational education programs, underscoring the magnitude of resources required to maintain the country’s learning system.
Latest data from the Bureau of the Treasury showed that the current national government’s outstanding debt is higher by P120 billion compared to the programmed debt ceiling of P17.35 trillion for 2025.
This is despite a decrease in the government’s current debt to P17.47 trillion.
For fiscal year 2026, the debt is presumed to increase by 9.8 percent to P19.06 trillion, based on the Budget of Expenditures and Sources of Financing for fiscal year 2026.
The DOF faces the formidable challenge of generating P13.65 billion in daily revenues and addressing a P4.51-billion daily deficit for next year. This is to sustain the government’s P18.61 billion daily expenditures.
‘To ensure a reliable revenue stream, tax revenues need to grow by 10.2 percent annually from 2025 to 2028, pushing total revenues to hit nearly P6 trillion by the end of the President’s term,’ the DOF said. ‘By 2030, total revenues will breach the P7 trillion mark.’
Finance Undersecretary Karlo Adriano earlier said that the reduction is equivalent to one percent of the gross domestic product, or approximately P330 billion per year on average.
He added that failing to achieve fiscal consolidation could lower the country’s credit rating, increase interest payments and raise overall debt, creating a cycle of mounting financial burdens for the government.