Recto: Narrowing VAT exemptions key to funding infrastructure

Finance Secretary Ralph Recto expressed support for proposals to reduce the number of value-added tax (VAT) exemptions, saying it would help broaden the revenue base and reduce the government’s reliance on borrowings for major infrastructure projects.

Speaking before senators during the Development Budget Coordination Committee (DBCC) hearing at the Senate finance committee on September 2, Recto said he was in favor of streamlining the list of VAT-exempt lines, currently numbering more than 130. “I’m one with you,” he told lawmakers when asked about his position on the matter.

Senator Panfilo Lacson said Congress has been pushing to limit exemptions, noting that many sectors continue to enjoy tax holidays despite their capacity to contribute to revenues. He suggested lifting exemptions for cooperatives, the power sector, and real estate, among others.

Recto explained that VAT accounts for only five percent of total collections by the Bureau of Internal Revenue (BIR) and Bureau of Customs (BOC), instead of the full 12 percent rate, due to the number of exemptions. He added that VAT revenues are largely used to cover government operating costs such as salaries, maintenance, interest payments, and the national tax allotment.

“All major capital outlays—including flood control projects, airports, roads, and bridges—are being financed through borrowing,” Recto said. Borrowings are expected to partly fund the projected %u20B11.65-trillion budget deficit in 2026, higher than this year’s %u20B11.56 trillion but smaller as a share of gross domestic product (GDP) at 5.3 percent versus 5.5 percent.

For the first half of the year, the deficit stood at 5.7 percent of GDP, which Recto described as “manageable.” He said the government’s fiscal program aims to gradually reduce the deficit and debt burden while creating jobs and raising incomes.

“Our refined fiscal program now charts a realistic path to reduce our deficit and debt, while creating more jobs, raising incomes, and lifting millions of Filipinos out of poverty along the way,” Recto said.