[Ask the Tax Whiz] Should Marcos gov’t cut VAT from 12 to 10% to ease inflation?

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The Philippines has one of the highest VAT rates in ASEAN, yet collection efficiency is only around 35–40%, indicating leakages

As global oil prices continue to rise, inflation is putting pressure on households, businesses, and the broader economy. Proposals to reduce VAT, suspend fuel taxes, and expand subsidies have gained traction.

In this special edition of Ask the Tax Whiz, The Philippine Tax Whiz breaks down the key policy options — what works, what doesn’t, and what must be done to balance immediate relief with long-term fiscal sustainability.

1. Should the Philippines reduce VAT from 12% to 10% to ease inflation?

A VAT reduction can provide relief, but only if paired with structural reforms.

The Philippines has one of the highest VAT rates in ASEAN, yet collection efficiency is only around 35–40%, indicating leakages. Reducing the rate without fixing the system risks revenue loss.

Reforms should include:

a. Electronic invoicing
b. Stronger enforcement
c. Rationalized VAT exemptions limited to essentials

A VAT cut without reform is risky. With reform, it can be strategic.

2. Should excise tax and VAT on fuel be suspended?

Suspending fuel taxes across all products is a common proposal, but it is costly and poorly targeted.

Higher-income households account for 50–70% of fuel consumption, meaning they benefit more. Tax cuts also do not address global supply constraints.

Targeted subsidies, such as fuel vouchers, are more efficient if supported by reliable data systems.

3. What else can government do beyond subsidies?

A meaningful response must go beyond short-term relief:

Immediate actions

1. Fuel vouchers for transport workers
2. Free or subsidized mass transport
3. Interest-free loans for MSMEs
4. Targeted tax relief for MSMEs and the middle class

Short-term reforms

1. Automatic subsidy mechanisms based on economic triggers
2. Policy reforms to enhance competitiveness
3. Stronger revenues through global tax cooperation

Medium-term strategies

1. Invest in electric public transport
2. Accelerate renewable energy adoption
3. Build integrated digital databases
4. Reduce the tax burden on the middle class

Long-term transformation

1. Revisit the Oil Deregulation Law
2. Transition to renewable energy
3. Establish a National Revenue Authority

4. What is the role of the BIR in this crisis?

The Bureau of Internal Revenue (BIR) is central to both relief and accountability.

Immediate interventions:

• Moratorium on tax penalties and interest
• Temporary suspension of MSME audits
• Focus enforcement on high-risk cases

At the same time, the BIR must strengthen accountability by auditing:

• Individuals with unexplained wealth
• Political dynasties
• Cases linked to COVID-19 and infrastructure spending anomalies

This improves revenue without raising taxes and helps restore public trust.

Tax evasion is not just a technical issue — it is a matter of fairness.

The Philippines does not lack policy options. The priority is execution — targeted relief, stronger tax administration, and credible accountability to ensure both economic stability and public trust. – Rappler.com

Mon Abrea is a Global Tax Policy Expert and Chief Tax Advisor of the Asian Consulting Group (ACG), the Philippines’ premier tax advisory and investment consulting firm—providing tax strategy, compliance, and policy advisory services to multinational corporations, foreign investors, and government institutions. For strategic tax advisory, CONSULT ACG, or you may also send an email to consult@acg.ph to host investment and tax briefing in key cities across Asia, Middle East, Oceania, Europe and North America.