TWO parallel measures in the 20th Congress seek to reduce the Value Added Tax (VAT) from 12 percent to 10, with the goal of easing consumer prices and improving the Philippines’ competitiveness within the Association of Southeast Asian Nations (Asean).
Senate Bill 1552, or the VAT Reduction Act of 2025, filed by Sen. Erwin Tulfo, aims to increase household purchasing power by lowering the tax burden on goods and services that are currently subject to VAT. It also includes a safeguard mechanism that allows the president to restore the 12 percent rate if fiscal conditions deteriorate.
House Bill 4302, filed by Batangas 1st District Rep. Leandro Leviste, has the same core objective, but highlights the importance of aligning Philippine consumption taxes with Asean peers such as Thailand, Vietnam, and Singapore, which maintain lower VAT or Goods and Services Tax (GST) rates.
A VAT reduction would directly affect goods and services, including appliances, electronics, clothing, furniture, restaurant meals, hotel services, transport services outside public utility fares, and processed food products such as marinated meats, sausages, jerky, and canned goods.
VAT-exempt
However, many basic necessities are already VAT-exempt under existing laws. These include food in its original state, such as rice, fish, fresh meat, poultry, fruits and vegetables.
Water supplied by water districts, public education services, and basic medical services are likewise VAT-exempt.
Export sales and certain services rendered to foreign clients remain zero-rated, meaning they are subject to 0-percent VAT, with input tax credits allowed.
Lowering the VAT rate would not affect the price of VAT-exempt goods directly, but it would reduce the cost of vatable items that families regularly purchase. This could help ease the burden of rising living expenses, and improve cash flow for micro, small and medium enterprises (MSMEs).
From a regional perspective, the Philippines’ current 12-percent VAT is higher than Thailand’s 7 percent, Singapore’s 9 percent, and Vietnam’s 10 percent. Reducing the Philippine VAT rate to 10 percent would narrow this gap and strengthen the country’s appeal to foreign direct investments.
The success of this reform measure, however, depends on strong enforcement, reduced leakages, and disciplined public spending. Lower taxes must be matched by better governance to ensure fiscal stability.
Ray G. Talimio Jr. is a certified public accountant and a columnist on governance, economic policy, and public accountability. He was past president and past chairman of the Board of the Cagayan de Oro Chamber of Commerce and Industry Foundation Inc., a national officer of the Philippine Institute of Certified Public Accountants, and former Brunei Darussalam-Indonesia-Malaysia-Philippines East Asean Growth Area (BIMP-EAGA) chairperson from 2023 to 2025.
