Filipino families and VAT

For nearly two decades, Filipinos have lived under the weight of the 12-percent value-added tax (VAT), once 10 percent, under Republic Act 9337, or the Expanded Value Added Tax Law. The increase was justified as a fiscal necessity as the government needed to stabilize revenues, reduce deficits and strengthen its financial performance.

In many aspects, the policy worked. VAT has become one of the government’s most reliable revenue streams, funding education, health care and infrastructure projects essential for national development. However, what was once fiscally sound for the government has not been socially sustainable for Filipino households.

The 2-percent hike may look small on paper but in reality it has drained billions from consumers over the years. VAT touches nearly every aspect of daily life, taxing Filipinos at every turn — from food, utilities, tuition fees, health care and even internet subscriptions.

Unlike direct taxes, it is unavoidable and embedded in every transaction. It is a burden that is shifted from the seller to the final consumer. For families already struggling with inflation, stagnant wages and rising costs of living, that extra 2 percent is not just a number, it’s a decision-maker. It can mean the difference between a meal on the table and an empty stomach, keeping the lights on or sitting in the dark, or paying for medicine or skipping treatment.

It is a silent deduction from every peso earned, making it a burden, and consumers have no choice but to endure higher costs on goods and services. In a country where private consumption accounts for more than 70 percent of the gross domestic product (GDP), the strain on households reverberates across the economy. When families spend less, businesses earn less and growth slows.

The debate over the country’s VAT has resurfaced as some lawmakers push to reduce the rate back to its original 10 percent under Senate Bill 1152, also known as the VAT Reduction Act. By comparison, the Philippines currently imposes one of the highest VAT rates in Southeast Asia — Thailand’s is 7 percent, Malaysia’s is 5 percent and Indonesia’s is 11 percent.

A higher VAT not only leaves consumers with less disposable income, it also affects the competitiveness and cost structures for businesses, making the country less attractive for investment. The VAT Reduction Act seeks to change that by boosting GDP while also easing the burden on Filipino households, particularly low- and middle-income families who see a substantial portion of their earnings consumed by VAT every time they spend.

Supporters of the proposal argue that lowering the VAT rate will immediately increase household disposable income and stimulate consumption. With more money left in the hands of consumers, families could spend beyond basic necessities, reshaping consumption patterns and fueling demand across industries. The added purchasing power will reinforce the households’ role as the primary driver of the Philippine economy.

In theory, the reduction in VAT could even offset part of the government’s revenue loss as higher sales may improve business performance and potentially increase collections from other tax types. Supporters also highlight the public trust issue, arguing that allowing households to retain more of their income may be more efficient than relying on government redistribution programs that are often viewed as vulnerable to inefficiency or leakages.

On the other hand, the Department of Finance (DOF) stresses that rolling back VAT could lead to annual revenue loss of roughly 1 percent of GDP, or about P330 billion from 2026 to 2030. VAT accounts for 26.5 percent of total tax collections and nearly 29.9 percent of government revenues. For fiscal managers, a reduction could widen the budget deficit and likely force the government to borrow more, potentially raising debt, increasing interest payments and affecting the country’s credit rating.

The DOF cautions that while lowering VAT will reduce prices and increase household purchasing power, it could slow down fiscal consolidation efforts that aim to stabilize the country’s finances over the long sterm.

Beyond economics, the debate is also shaped by public sentiment. Issues surrounding corruption, inefficiency and misuse of funds have damaged public trust and influenced how citizens perceive taxation. For many households, VAT has become more than a consumption tax — it is a symbol of governance challenges. When taxpayers see reports of waste, fraud or mismanagement, the willingness to accept a high tax burden declines. Conversely, when revenues are used effectively, taxation can be perceived as a necessary contribution to national development.

If passed, the VAT rollback could mark a turning point in economic policy, one that reconsiders how the government balances revenue generation with household welfare. It could provide a breathing room for families, stimulate consumption, influence business confidence and strengthen the economy from the ground up.

However, this also raises questions about fiscal sustainability and the government’s ability to fund critical services. Policymakers must evaluate whether the potential short-term boost to spending outweighs the long-term implications for public finances and whether complementary reforms, such as improved tax administration, reduced leakages, or a broadened tax base are necessary. Strengthening transparency, improving service delivery and ensuring accountability may be as important as tax reform itself in restoring public confidence.

Ultimately, the VAT debate highlights the need for a balanced, evidence-based approach. Policymakers must weigh immediate household needs against long-term fiscal stability, considering how each option aligns with the country’s broader goals of inclusive growth, resilience and competitiveness. The question is not simply whether VAT should be reduced or maintained, but how any decision fits into a coherent, responsible and forward-looking economic strategy.

Whether the government chooses to retain the 12-percent rate or revert to 10 percent, the path forward should be grounded in credible analysis, realistic planning and transparent communication. As the discussion continues, the challenge for policymakers is to craft a policy approach that secures long-term fiscal health and also acknowledges the everyday realities faced by Filipino families who are affected by every price increase.

Source: Manila Times

Infrastructure spending boost seen key to faster PH growth in 2026

A recovery of government infrastructure spending after a deep slump triggered by the flood control scandal would be the most effective way to accelerate growth, ANZ Research said, arguing that the boost from interest rate cuts is still debatable in an environment of weakening confidence.

In a note to clients, Sanjay Mathur, ANZ’s chief economist for Southeast Asia, said that while the Bangko Sentral ng Pilipinas (BSP) may opt for one last final rate cut to support the economy, there are repercussions from the graft fallout that may not be effectively addressed through monetary policy easing.

“There has been a downshift in the growth in the Philippines as repercussions from governance-related issues in public infrastructure projects have not receded,” Mathur wrote. “The resulting weakness in public spending, particularly on the capital side, has permeated into the household and business sectors.”

“The efficacy of the monetary policy easing cycle against the backdrop of low household and business confidence is debatable,” he added. “In our view, a revival in government spending is the most appropriate pathway to faster growth.”

Lowered growth target

Earlier this month, economic officials in the Marcos administration trimmed their 2026 growth target to 5 to 6 percent, from the previous goal of 6 to 7 percent, underscoring the economic costs of the sweeping investigation into anomalous flood control projects.

ANZ’s Mathur estimated that growth in the fourth quarter of 2025 may have settled at a “sub-potential” rate of 4.5 percent, which, he said, is likely to validate the need for an additional cut in the policy rate.

To help “compensate” for the effects of the graft fallout, the BSP cut its benchmark rate by a quarter point to 4.5 percent last December, bringing total reductions since the easing cycle began in August 2024 to two percentage points.

Source: Inquirer

Philippines accelerates push to light up rural homes

Over a million households in the Philippines remain without electricity, a gap the government aims to close within the next three years.

Energy Secretary Sharon S. Garin said the Department of Energy (DoE) and National Electrification Administration (NEA) are deploying a mix of strategies to speed up household energization, including microgrid systems, solarized homes, and streamlined grid connections.

“Just a little more and we’ll be close to 100%,” she said in a speech last year. “For every one peso the government spends on electrification, we get four pesos in return. So, it’s an investment for us and for our children.”

During his fourth State of the Nation Address in July 2025, President Ferdinand R. Marcos, Jr. directed the DoE and NEA to accelerate efforts to fully electrify the country before the end of his term in 2028.

As of June 2025, about 28.27 million households have been energized, accounting for 94.77% of the projected households from the 2020 Philippine Statistics Authority census.

Luzon posted the highest electrification rate at 98.53%, followed by the Visayas at 95.78%, while Mindanao continues to trail at 83.81%, highlighting the difficulty of reaching last-mile communities.

Under the 2024-2028 National Electrification Roadmap, the government was targeting a 96.51% electrification rate by the end of 2025.

The DoE’s Electric Power Industry Management Bureau (EPIMB) said achieving full electrification by 2028 will require an estimated P80.9 billion, with around P68.26 billion expected from government financing and P12.64 billion from private investments.

The funds will cover household connections to existing grids, distribution line extensions, stand-alone home systems, and microgrid projects.

NEA Administrator Antonio Mariano C. Almeda said the agency expected rural electrification to reach 91.7% by the end of 2025, aiming for 94% by the end of 2026 with higher subsidies from Congress.

“With the increase in the budget, it requires an increase in engineers to validate, inspect, liquidate, and issue certificates of final inspection,” he said during a briefing in December, noting that the issue is being discussed with the Commission on Audit.

EPIMB said insufficient funding and subsidies make grid extension and off-grid projects difficult, particularly in areas where electrification is not commercially viable.

“Because rural electrification is often not profitable, private companies are hesitant to invest. The regulatory and institutional frameworks—tariffs, subsidies, and incentives—may not sufficiently offset risk,” the bureau said.

Much of the work of electrifying last-mile communities has fallen to electric cooperatives and private utilities operating on the ground.

The Philippine Rural Electric Cooperatives Association, Inc. (PHILRECA), which represents cooperatives nationwide, said it is aligning its programs to support the government’s 2028 electrification goal.

“We are aligning all available mechanisms, projects, and assistance to ECs (electric cooperatives) in ensuring the attainment of total electrification by 2028,” PHILRECA Executive Director and General Manager Janeene Depay-Colingan said in a statement.

She noted that ECs face obstacles, including difficult terrain, limited infrastructure, high project costs, and logistical constraints, which require innovative and coordinated approaches.

PHILRECA said it is strengthening partnerships with government agencies, optimizing funding mechanisms, deploying modular and renewable energy solutions in off-grid areas, and enhancing the technical capacities of cooperatives.

MICROGRIDS, RENEWABLES

Manila Electric Co. (Meralco), which serves about 3% of the country’s land area, has also expressed support for the national agenda.

“The government’s target of achieving full electrification nationwide by 2028 is ambitious and critical for inclusive development — and Meralco is fully committed to supporting this agenda,” Meralco Executive Vice-President and Chief Operating Officer Ronnie L. Aperocho said.

Meralco is expanding its role in off-grid electrification through microgrid projects. The company targets to energize more than 1,000 homes and businesses on Cagbalete Island in Mauban, Quezon, with a solar-plus-battery microgrid system and backup diesel generation.

“With the launch of the Cagbalete Microgrid, we reaffirm Meralco’s commitment to power progress with sustainable energy solutions, ensuring that no one is left in the dark,” Mr. Aperocho said.

Renewable energy and microgrids are seen as cost-effective solutions for off-grid areas. Many households in remote communities rely on diesel generators or kerosene lamps, which often incur higher and more volatile costs.

“It offers a way to step back from traditional grid extension, reduce reliance on diesel and imported fuels, improve resilience — especially given the country’s exposure to natural disasters — and support inclusive development,” EPIMB said.

Albert R. Dalusung III, energy transition adviser at the Institute for Climate and Sustainable Cities, said that renewable energy can help lower electricity costs for local communities.

He cautioned that efforts should focus not only on expanding coverage but also on delivering reliable power that enables economic activity.

“I think what is important is not just to target full electrification because it may be ‘full electrification,’ but you’re only delivering eight hours or less of electricity,” he said.

Source: Business World