VAT cut may reduce revenue by 17% – BIR

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January 9, 2026 | 12:00am

MANILA, Philippines —  The Bureau of Internal Revenue (BIR) warned that the proposed cut in value-added tax (VAT) to 10 percent from 12 percent could significantly affect government revenue, while economists weighed in on its potential economic impact.

While acknowledging that cutting the VAT is ultimately a policy decision for Congress, BIR Commissioner Charlito Mendoza told reporters that the measure would have a significant impact on revenue, potentially lowering VAT collections by roughly one-sixth.

“It’s a policy judgment that belongs to Congress but will definitely have a revenue impact. On our part, what we do is tax administration. We do our best to maximize collection of revenues in a way that is not only efficient but fair,” he said.

Sen. Erwin Tulfo recently filed a bill seeking to reduce VAT to 10 percent from 12 percent, with the aim of easing the burden of escalating living expenses. Last year, Cavite Rep. Francisco Barzaga introduced a similar bill seeking to abolish the VAT.

A revenue impact of one-sixth is equivalent to a nearly 17 percent revenue reduction.

Reyes Tacandong & Co. senior adviser Jonathan Ravelas said that a VAT cut could increase consumers’ spending power, potentially boosting demand and supporting economic growth.

”It may ease inflation slightly if businesses pass on the savings, but the real challenge is replacing lost revenue,” he said.

Ravelas noted that while a VAT cut benefits everyone, higher-income households gain more in absolute terms, suggesting that pairing the measure with targeted support for low-income families would make it more inclusive.

Finance Secretary Frederick Go said that they are avoiding measures that would lower revenue but indicated that a VAT cut could be considered if exemptions are removed.

Meanwhile, Rizal Commercial Banking Corp. chief economist Michael Ricafort said that reducing VAT poses a delicate challenge as it would lower government revenues and worsen budget deficits, which require increase in borrowing to cover the gap.

“Revenues partly finance many of the budget items that benefit the poorest of the poor such as education, health care, nutrition, social services and other assistance programs,” he said.

“Reducing the VAT rate would reduce overall national government tax revenues, widen the budget deficit that would require more national government borrowings and debt,” Ricafort added.

Senior research fellow of the Philippine Institute for Development Studies, John Paolo Rivera said a VAT cut could reduce inflation in the near term, but the effect fades once base effects kick in or if supply constraints persist.

“It can help support consumption when growth is soft, but its impact on the economy is usually temporary and depends on confidence. If households are cautious, much of the gain may be saved rather than spent,” he said.

2025 revenues

Mendoza said preliminary data showed that the BIR has already collected P3.103 trillion for end-2025, with collections expected to rise in the coming weeks following a rebound in collection last December.

However, it is still below the mandated collection target of P3.219 trillion set by the Cabinet-level Development Budget Coordination Committee.

“For December, we have rebounded significantly. As of yesterday, our growth for December 2025 is at 7.5 percent compared to 2024. Hopefully the trend will continue going into this year because you know that the BIR’s collection target is significantly higher for this year,” he said.

The DOF previously said that the BIR will fall short of its 2025 collection target following the flood control issue.