Recto wary of VAT cut, citing revenue loss and credit rating risk

Finance Secretary Ralph Recto is hesitant to support proposals to reduce the Value-Added Tax (VAT) from 12% to 10%.

Recto warned that a VAT cut could lead to a credit rating downgrade and massive revenue losses, potentially forcing the government to borrow even for basic operations like personnel salaries.

He highlighted that the entire VAT collection for 2025 of P1.39 trillion can only fund nine months' worth of payroll, premium, and pension for government workers.

Recto also noted that the P576 billion in excise tax collections would be insufficient to fund the combined budget for basic, tertiary, and technical-vocational education programs.

Despite these concerns, Recto stated that the government can afford the pension for military and uniformed personnel for the upcoming year without reforms, with the 2026 pension expense projected at ₱133.9 billion.

A bill filed by Batangas First District Representative Leandro Leviste proposes to reduce the VAT rate to 10% from 12%, but allows the President to restore it to 12% under certain fiscal conditions.