THE Philippines has room to create fiscal space equivalent to as much as 7.1 percent of economic output through reforms to improve tax collection and cut inefficiencies in government spending, according to the World Bank.
The World Bank on Monday said the country could generate 3.6 percent to 7.1 percent of gross domestic product (GDP) in fiscal savings and additional revenues without relying primarily on higher statutory tax rates.
‘That’s a very significant number, actually. That’s equivalent to hundreds of billions of pesos that can be redirected to health, education, infrastructure, social protection, and to lower public debt,’ World Bank Division Director Zafer Mustafaoglu said at a media briefing.
‘These resources are vital to building greater human and fiscal capital and to strengthen the macro foundations of this country, which together will attract investment, create more and better jobs, reducing poverty, and growing middle class. The reforms that can unlock this are concrete, sequenced, and achievable.’
The potential gains come as the World Bank estimates that more than 11 percent of GDP in potential revenue is being left uncollected from the country’s three main taxes: value-added tax, corporate income tax and personal income tax.
Official data showed that the government collected P1.26 trillion in VAT in 2025, P121.7 billion below its P1.37-trillion target; while personal income tax collections reached P809.1 billion, falling P40.4 billion short of the P849.5-billion goal.
Corporate income tax collections, meanwhile, hit a total P685.4 billion, P48.8 billion above the P636.6-billion target.
The World Bank said the additional fiscal space can be unlocked through three sets of reforms: reducing government procurement costs and tightening the budget; improving tax collection; and making existing public spending more targeted and effective.
The first package, ‘Fiscal Space at Hand,’ could generate 2.2 percent to 4 percent of GDP. It would seek to lower procurement costs by combining government purchases, simplify tax rules and review corporate tax incentives.
It also calls for capping Unprogrammed Appropriations at 5 percent of the General Appropriations Act (GAA) and strengthening the medium-term fiscal framework.
The World Bank said combining procurement needs would allow agencies to negotiate lower prices, particularly for commonly used goods and services.
Under the proposed 5-percent cap, Unprogrammed Appropriations would also be limited as a standby spending authority outside the regular budget, with clearer conditions for their release.
The second package, ‘Closing Fiscal Gaps,’ could add 1.4 percent to 3.1 percent of GDP through better financial management and stronger tax administration.
Measures include e-invoicing, matching taxpayer information across sources, stronger audit capacity and reducing some non-food VAT exemptions.
The World Bank also proposed expanding the Pantawid Pamilyang Pilipino Program (4Ps) alongside the VAT changes to cushion poor and near-poor households.
World Bank Senior Country Economist Jaffar Al-Rikabi noted that some existing VAT exemptions are poorly targeted because higher-income households tend to consume more exempted goods in absolute terms.
‘A policy that is intended to support the poor actually does it, but in a quite poorly targeted manner. There is scope to improve how this policy works,’ Al-Rikabi said.
The third package, ‘Targeting Human Capital,’ would focus on improving the use of existing public funds rather than generating large new fiscal savings.
It calls for better targeting of health and social assistance and directing education funds toward foundational learning, classrooms and teaching materials, particularly in underserved areas.
These reforms, according to the World Bank, could reduce the debt-to-GDP ratio to 57 percent by 2032 while supporting GDP growth of 5.8 percent.
Gov’t response
For its part, Finance Secretary Frederick Go said the Department of Finance (DOF) will review the World Bank’s recommendations and use them to refine the government’s approach to revenue mobilization and tax policy.
‘We will work closely with the World Bank to build our technical capacity and to track our progress. We will pursue this agenda as a whole-of-nation effort,’ Go said in a prerecorded keynote message during the report’s launch on the same day.
Go said the government, Congress and the private sector would need to work together to advance the fiscal reform agenda, with fiscal credibility helping support lower borrowing costs and investment.
He said the agenda centers on improving tax collection, making public spending more effective and strengthening institutions to ensure government programs are properly planned, implemented, and reported.