Philippines open to scrapping some taxes to ease consumer burden

MANILA, 19 AUGUST 2026 —

Malaysia Eyes Tax Reforms as Philippines Considers VAT Cuts

Speaking at a budget hearing on Monday, Finance Secretary Frederick D. Go stated his neutrality toward tax removal proposals, emphasizing the need to identify replacement revenue streams to fund the national budget of ₱7.2 trillion (US$128 billion).

“I am not opposed to any tax removal for as long as a replacement revenue source is identified,” Go said. “We have to fund our national expenditure budget, so if we remove any tax measure, the request is that another tax source be identified.”

The remarks follow a proposal by Party-list Representative Sarah Jane I. Elago to ease the burden of rising fuel prices on Filipino consumers by reducing or removing VAT. Elago also raised concerns about minimum wages in seven regions remaining below the poverty threshold of ₱480 (US$8.50) per day for a family of five outside Metro Manila.

Go noted that the Philippines’ effective VAT rate stands at 6%, half the statutory 12%, due to numerous exemptions. However, Asian Consulting Group Founding Chairman Raymond “Mon” A. Abrea highlighted that despite one of the highest VAT rates in Southeast Asia, the country’s collection efficiency remains low at 35-40%, compared to the ASEAN average of 57%.

“That tells us the bigger problem is not the tax rate, but leakages and weak collection efficiency,” Abrea told BusinessWorld.

The Philippine government projects VAT and related sales tax collections to reach ₱762.42 billion (US$13.5 billion) this year, a 12.2% increase from ₱679.64 billion in 2025. Revenues are expected to grow by 12.8% annually, reaching ₱860.03 billion (US$15.2 billion) in 2027.

DoF Undersecretary Rolando T. Ligon attributed the projected increase to economic recovery and infrastructure spending, which is expected to boost transactions and, consequently, VAT collections.

“If you spend on infrastructure, you will create jobs and that will help the economy,” Ligon said. “That is why we expect bigger collections from VAT, because VAT is based on transactions.”

Abrea, however, cautioned that relying solely on consumption growth may not be sufficient. He stressed the need for stronger tax administration reforms, including full implementation of electronic invoicing (e-invoicing), real-time sales reporting, and risk-based audits.

E-invoicing was mandated under the Tax Reform for Acceleration and Inclusion (TRAIN) law, but its rollout remains incomplete, with the deadline for covered taxpayers extended to December 31.

“The Philippines does not need higher VAT. It needs a more efficient VAT system,” Abrea said.

In a separate development, Go said the DoF would study a proposal to impose a 1% “billionaire’s tax” on taxable income exceeding ₱1 billion (US$17.7 million). The proposal would be separate from wealth-related measures in the DoF’s Promoting Growth, Revenue, and Equity towards Socio-economic Sustainability package, which includes a 75% excise tax on vehicles worth over ₱8 million (US$142,000) and a five-percentage-point increase in taxes on nonessential goods.

Regional Implications for Malaysia Malaysia, which imposes a 6% sales and service tax (SST) and a 10% value-added tax (VAT) on certain goods, has been reviewing its tax structure to balance revenue generation with economic growth. The Philippine discussions on VAT efficiency and potential reforms could provide insights for Malaysian policymakers as they assess the impact of consumption-based taxes on businesses and households.

Economists in Malaysia have previously highlighted the need for tax administration improvements, including digitalization and stricter enforcement, to enhance collection efficiency. The Philippine experience underscores the challenges of balancing tax relief with revenue sustainability—a consideration that resonates in Malaysia’s own fiscal strategy.

Stakeholder Perspectives Abrea’s emphasis on tax administration efficiency reflects broader concerns among tax experts in the region. While high statutory tax rates may attract attention, weak enforcement and exemptions often undermine revenue potential.

DoF officials, meanwhile, remain focused on funding national priorities while exploring targeted tax adjustments. The billionaire’s tax proposal, though still under study, signals a potential shift toward progressive taxation—a trend observed in other ASEAN economies.

Forward-Looking Outlook As the Philippines advances its tax reform agenda, Malaysia may draw lessons on balancing fiscal sustainability with economic recovery. The success of VAT reforms in the Philippines will depend not only on policy adjustments but also on the implementation of tax administration systems.

For Malaysian stakeholders, the Philippine experience serves as a case study in navigating the trade-offs between tax relief and revenue generation—a challenge that will shape fiscal policies across the region in the coming years.

Details not yet available on Malaysia’s direct response to the Philippine proposals.

Related: Chairman · Manila