Government Rebuffs Tax Holidays and VAT Cuts in Favor of Stronger Tax Enforcement
The Philippine government, led by Department of Economy, Planning, and Development (DEPDev) Secretary Arsenio M. Balisacan, is signaling a clear preference for tightening the reins on existing tax measures rather than introducing new relief like tax holidays or lowering the value-added tax (VAT). In remarks to reporters during the European-Philippine Business Dialogue, Balisacan emphasized that preserving revenue streams is essential to the country’s medium-term fiscal program (MTFP) and overall macroeconomic stability.
“What we want to avoid are any measures that erode our revenues. In fact, what we should do is strengthen and improve the enforcement and implementation of our tax measures to ensure that we’ll achieve this medium-term fiscal framework (MTFF),” he said. These comments come as policymakers navigate a complex mix of domestic needs and external pressures, including debt levels, deficit targets, and the impact of digitization on administration.
Digitalization as a Core Pillar of Tax Administration
Balisacan highlighted the administration’s push toward full digitalization of tax collection and administration, aiming to reduce face-to-face interactions between taxpayers and revenue officers. The plan envisions a tax system where paying taxes is simpler and can be done remotely—from homes or offices—without the need for frequent visits to the Bureau of Internal Revenue (BIR) or the Bureau of Customs (BOC).
“We are making a big push on the digitalization of our processes,” the secretary noted, adding that such modernization aligns with the government’s broader goal to stabilize debt and shrink the budget deficit relative to GDP. The MTFP targets are tied to these macroeconomic indicators, which matter to both local and international investors and credit rating agencies concerned about deficits and fiscal sustainability.
MTFP Targets and the Debt Trajectory
Data up to August show the national government’s fiscal deficit widening to ₱869.2 billion, or 24.7 percent higher than the previous year, driven by faster spending growth than revenue. The Bureau of the Treasury, however, stressed that the year-to-date deficit remains within the revised full-year program of ₱1.56 trillion and is at about 55.7 percent of the year’s target.
The government aims to reduce the deficit to 5.5 percent of GDP this year, down from 5.7 percent in the prior year, and chart a path toward 3.1 percent by 2030. Debt dynamics are central to these plans. Outstanding government debt eased slightly to ₱17.47 trillion in August after a peak in July, aided by the settlement of local bonds and a stronger peso. Officials, including Finance Secretary Ralph G. Recto and National Treasurer Sharon P. Almanza, have expressed confidence that the end-2025 debt target of ₱17.36 trillion will be met.
Looking ahead, the Budget of Expenditures and Sources of Financing (BESF) for FY2026 suggests debt might breach ₱19 trillion by the end of 2026, a concern that underscores the trade-offs policymakers face between growth, debt sustainability, and revenue integrity.
Policy Debates: Tax Holidays vs. Enforcement
The policy debate has intensified with proposals for a One-Month Tax Holiday in 2025 (SB No. 1446) and bills to reduce VAT to 10 percent (HB No. 4302) or scrap VAT altogether (HB 5119). Balisacan’s stance places emphasis on enforcement over temporary relief. He argues that any revenue-eroding measures could jeopardize the MTFF and the country’s credit standing, potentially affecting interest rates and investment flows.
In this environment, the administration’s focus remains on closing gaps in tax compliance, broadening the tax base, and leveraging digital tools to minimize collection costs while improving accuracy. These steps are designed not only to bolster revenue but also to foster a more resilient fiscal framework that can weather domestic and global shocks.
As the legislative process unfolds, observers will watch how tax policy aligns with the MTFF and the broader aim of sustainable growth. The decision to prioritize enforcement and digital modernization signals a pragmatic approach: preserve fiscal space today to fund essential services tomorrow, while maintaining investor confidence and the country’s credit outlook.
