Recto: VAT cut could force govt to borrow

THE government could be forced to borrow more if the value-added tax (VAT) is lowered to 10 percent from 12 percent, a Cabinet official said.

“Proposals to lower the value-added tax rate lead to massive revenue losses, resulting in less public services and may force the government to borrow even for basic operations, such as personnel salaries,” Finance Secretary Ralph Recto said in a statement on Thursday.

The projected P1.39-trillion VAT collections this year, he added, “can only fund nine months’ worth of payroll, premium and pension of active and retired government workers.”

“Likewise, the P576 billion in total excise tax collections would not even be enough to fund the combined P965-billion budget for basic, tertiary and technical-vocational education programs,” Recto said.

Development Budget Coordination Committee data show that the Bureau of Customs (BOC) has collected P288.4 billion in VAT as of the first half of 2025, 5.1 percent higher than the year-earlier P274.2 billion.

Bureau of Internal Revenue (BIR) VAT collections, meanwhile, reached P338.8 billion, 15.0-percent up from the P294.6 billion seen in January-June 2024.

The BIR is expected to collect P796.87 billion in VAT this year while the BOC needs to generate P589.5 billion from VAT on imports.

The government has already breached its debt cap of P17.359 trillion for 2025, with borrowings having hit P17.47 trillion in August. It plans to borrow P2.68 trillion next year.

Most of the borrowings will come from the domestic debt market at P2.05 trillion, down from the P2.11 trillion programmed for 2025. The bulk, or P1.99 trillion, will come Treasury bonds and another P60 billion will come from T-bills.

The remaining P627.1 billion will be sourced abroad, up from 2025’s P488.17 billion. This includes program loans (P263.3 billion), project loans (P61.7 billion), and bonds and other inflows (P302.1 billion).