VAT Reduction Act of 2025

Senate TWENTIETH CONGRESS OF THE REPUBLIC OF THE PHILIPPINES First Regular Session NOV 24 A10 :25 SENATE RECEIVED BY: Senate Bill No. 1552 Introduced by Senator Erwin T. Tulfo AN ACT REDUCING THE VALUE-ADDED TAX (VAT) FROM 12% TO 10%, AMENDING FOR THE PURPOSE SECTIONS 106, 107, AND 108 OF THE NATIONAL INTERNAL REVENUE CODE OF 1997, AS AMENDED, AND FOR OTHER PURPOSES EXPLANATORY NOTE The Philippines currently has the highest Value-Added Tax (VAT) in Southeast Asia at 12%. By comparison, neighboring countries impose lower rates: 11% in Indonesia, 10% in Cambodia, 10% in Vietnam, 9% in Singapore (GST), 7% in Thailand, 7% in Laos, 6% in Malaysia, 5% in Myanmar (Service Tax), and 2.5% in Timor- Leste (Import Tax). Reducing the VAT to 10% would align the Philippines more closely with regional standards, improving competitiveness and encouraging economic activity. Beyond regional competitiveness, VAT is inherently regressive: it disproportionately burdens low- and middle-income households, consuming a higher share of their income relative to wealthier households. A reduction in VAT is therefore consistent with the Constitution's mandate to establish a progressive tax system that promotes equity and social justice. Moreover, inflation remains the primary concern of Filipino households, and VAT reduction is a direct and efficient mechanism to ease the cost of living. Unlike redistributive programs funded through

other forms of taxation, which may suffer from leakages and administrative inefficiencies, lowering VAT immediately increases household purchasing power and stimulates consumption. This, in turn, can boost economic growth, increase overall tax compliance, and partially offset potential revenue reductions through higher GDP growth. To ensure fiscal responsibility, this bill empowers the President, upon the recommendation of the Secretary of Finance, to temporarily revert the VAT rate to 12% in any fiscal year if the Development Budget Coordination Committee (DBCC) projects that the national deficit as a percentage of GDP will exceed programmed targets. This provision balances immediate relief for the people with the need to maintain fiscal discipline. In view of the foregoing, the immediate passage of this bill is earnestly sought. ERWIN T. TULFO

Sciate Office of the Erectary TWENTIETH CONGRESS OF THE REPUBLIC OF THE PHILIPPINES ) 25 NOV 24 A10:25 First Regular Session RECEIVED BY: SENATE Senate Bill No. 1552 Introduced by Senator Erwin T. Tulfo AN ACT REDUCING THE VALUE-ADDED TAX (VAT) FROM 12% TO 10%, AMENDING FOR THE PURPOSE SECTIONS 106, 107, AND 108 OF THE NATIONAL INTERNAL REVENUE CODE OF 1997, AS AMENDED, AND FOR OTHER PURPOSES Be it enacted by the Senate and the House of Representatives of the Philippines in Congress assembled:

SECTION 1. Short Title. - This Act shall be known as the "VAT

2 Reduction Act of 2025".

SEC 2. Section 106 (A) of the National Internal Revenue Code

5 of 1997, as amended, is hereby further amended to read as follows: "Section 106. Value-Added Tax on Sale of Goods or Properties. - (A) Rate and Base of Tax. - There shall be levied, assessed and collected on every sale, barter or exchange of goods or properties, a value-added tax equivalent to [twelve percent (12%)] TEN PERCENT (10%) of the gross sales of the goods or properties sold, bartered or exchanged, such tax to be paid by the seller or

transferor-]: PROVIDED, THAT THE UPON THE PRESIDENT, RECOMMENDATION OF THE SECRETARY OF FINANCE, MAY TEMPORARILY REVERT THE VALUE-ADDED TAX TO TWELVE PERCENT (12%) FOR A GIVEN YEAR IF THE PROJECTED DEFICIT TARGET AS A PERCENTAGE OF GROSS DOMESTIC PRODUCT (GDP) EXCEEDS THE PROGRAMMED DEFICIT, AS DETERMINED BY THE DEVELOPMENT BUDGET COORDINATION COMMITTEE (DBCC) IN THE PRECEDING YEAR, BASED ON THE ANNUAL REVIEW OF THE MEDIUM TERM FISCAL PROGRAM."

SEC 3. Amendment to Section 107 (A). - Section 107 (A) of the

National Internal Revenue Code of 1997, as amended, is hereby further amended to read as follows: "Section 107. Value-Added Tax on Importation of Goods. - (A) In General. - There shall be levied, assessed and collected on every importation of goods a value-added tax equivalent to [twelve percent (12%)] TEN PERCENT (10%) based on the total value used by the Bureau of Customs in determining tariff and customs duties, excise taxes, if any, and other charges, such tax to be paid by the importer prior to the release of such goods from customs custody: Provided, That where the customs studies are determined on the basis of the quantity or volume of the goods, the value- added tax shall be based on the landed cost plus excise taxes, if anyl-]: PROVIDED, THAT THE UPON THE PRESIDENT, RECOMMENDATION OF THE SECRETARY

OF FINANCE, MAY TEMPORARILY REVERT THE VALUE-ADDED TAX TO TWELVE PERCENT (12%) FOR A GIVEN YEAR IF THE PROJECTED DEFICIT TARGET AS A PERCENTAGE OF GDP EXCEEDS THE PROGRAMMED DEFICIT, AS DETERMINED BY THE DBCC IN THE PRECEDING YEAR, BASED ON THE ANNUAL REVIEW OF THE MEDIUM TERM FISCAL PROGRAM."

SEC 4. Amendment to Section 108 (A). - Section 108 (A) of the

12 National Internal Revenue Code of 1997, as amended, is hereby further amended to read as follows: "Section 108. Value-Added Tax on Sale of Services, Including Digital Services, and the Use or Lease of Properties. - (A) Rate and Base of Tax. - There shall be levied, assessed and collected, a value-added tax equivalent to [twelve percent (12%)] TEN PERCENT (10%) of the gross sales derived from the sale or exchange of services, including digital services, and the use or lease of properties =1: PROVIDED, THAT THE UPON THE PRESIDENT, RECOMMENDATION OF THE SECRETARY OF FINANCE, MAY TEMPORARILY REVERT THE VALUE-ADDED TAX TO TWELVE PERCENT (12%) FOR A GIVEN YEAR IF THE PROJECTED DEFICIT TARGET AS A PERCENTAGE OF GDP EXCEEDS THE PROGRAMMED DEFICIT, AS DETERMINED BY THE DBCC IN THE PRECEDING YEAR, BASED ON THE ANNUAL REVIEW OF THE MEDIUM TERM FISCAL PROGRAM."

SEC. 5. Implementing Rules and Regulations. - Within ninety

(90) days from the effectivity of this Act, the Secretary of Finance, in coordination with the Commissioner of Internal Revenue, shall promulgate the necessary rules and regulations for its effective implementation.

SEC. 6. Separability Clause. - Should any provision or part of

this Act be declared unconstitutional or invalid, the other provisions and parts hereof, insofar as they are separable from the invalid ones, shall remain in full force and effect.

SEC. 7. Repealing Clause. - All laws, decrees, orders,

proclamations, rules and regulations, or parts thereof, which are inconsistent with this Act are hereby repealed, amended, or modified accordingly.

SEC. 8. Effectivity. - This Act shall take effect fifteen (15) days

after its publication in the Official Gazette or in at least two (2) newspapers of general circulation. Approved,