A SUGGESTION from the Organization for Economic Cooperation and Development (OECD) for the Philippines to stop value-added tax (VAT) exemptions among certain sectors could cause problems, Federation of Philippine Industries Chairman Elizabeth Lee said on Wednesday.
The Paris-based OECD is an intergovernmental organization of 38 member countries that provides a forum for governments to coordinate economic and social policies.
In its inaugural Economic Survey of the Philippines 2026, the OECD said the country has one of the lowest VAT revenue collection ratios in Southeast Asia, collecting only about 45 percent of potential revenue despite a standard 12-percent rate.
It recommended phasing out broad VAT exemptions for senior citizens, education and private health care sectors so the government can increase taxes and revenue collections. This could yield about 6.5 percent of the country’s gross domestic product, said the OECD.
However, this could also raise expenses and dampen consumption in socially sensitive sectors, if not carefully sequenced, Lee said.
“Any abrupt changes could ripple through households and, at the margins, labor markets, affecting employment and service access,” Lee pointed out. “Safeguards are essential, and we must be sensitive to the effects of these changes.”
The OECD report noted that the government should also gradually phase out tax holidays and shift to expenditure-based corporate tax incentives to realign incentives with efficiency and fiscal discipline.
But this could further pull the country behind its Asean peers, which are deploying aggressive fiscal packages, Lee said.
“Moving away from tax holidays, if and when it is implemented, must be carefully sequenced and regionally benchmarked to ensure reforms strengthen — rather than erode — the country’s investment appeal,” Lee said.
Incentive reforms must be paired with competitiveness measures — lower logistics and power costs, stronger infrastructure and productivity upgrades, Lee added.