The Philippine government’s tax revenue target appears ‘ambitious,’ with value-added tax (VAT) collections estimated to rise by 12.8 percent to P860 billion next year even without introducing major tax reforms, according to research and analysis firm BMI.
‘While easing inflation and higher Metro Manila minimum wages – which will reportedly benefit over 1.1 million workers – should support consumption and VAT collections in 2027, we doubt that this alone will be sufficient to hit the target,’ BMI said in a report.
Based on the latest Budget of Expenditures and Sources of Financing, the Marcos administration projects tax revenues to increase to P4.85 trillion, equivalent to 14.6 percent of gross domestic product (GDP).
‘We expect revenue to ease modestly from 15.8 percent of GDP in 2026 to 15.7 percent in 2027, broadly in line with the government’s target,’ BMI said.
It added much of the decline reflects an anticipated fall in non-tax revenues following a record government dividend windfall in 2026.
Overall government revenues are expected to reach P4.81 trillion, equivalent to 15.8 percent of GDP this year and P5.21 trillion, or 15.7 percent of GDP next year.
Meanwhile, BMI noted that some new tax measures have yet to be incorporated into the budget’s revenue projections and could support revenues.
The government has proposed higher excise taxes on sweetened beverages, tobacco products, alcohol and automobiles, as well as a new excise tax on plastics, to offset revenue losses from tax-relief measures.
The proposed tax package is estimated to yield a net revenue gain of P47.9 billion annually over 2027 to 2030.
In addition, BMI said the proposed P7.2-trillion budget for 2027 ‘supports continued fiscal consolidation through spending restraint and selected tax reforms,’ but the pace of deficit reduction remains ‘modest.’
BMI forecasts the fiscal deficit to narrow to 5.1 percent in 2027 from 5.4 percent of GDP in 2026, in line with the government’s target.
‘Risks are tilted toward a wider fiscal deficit. Revenue targets may prove difficult to achieve even after new tax reforms, particularly as we forecast GDP growth of 4.9 percent in 2027, below the government’s five-to-six percent budget assumption,’ BMI said.
The Philippine economy grew at its slowest pace in five years, at 2.3 percent in the second quarter, dragged by the Middle East conflict and the flood control scandal.
BMI also expects total expenditure to decline to 20.8 percent of GDP in 2027 from 21.3 percent in 2026.
BMI also flagged the US-Iran conflict as an additional risk.
‘While our base case remains that the US and Iran will reach a preliminary deal in the third quarter that reopens the Strait of Hormuz, further delays could extend the negative economic spillovers into 2027,’ it said.
BMI also said this may dampen revenue collections and increase pressure for broader cost-of-living support measures, widening the deficit more than expected.