There’s growing talk in government circles about reducing the Value-Added Tax (VAT) from 12% to 10% — something many Filipinos have been wishing for.
After all, lower VAT means cheaper goods and a little more room to breathe each payday.
But will it really make a difference to your wallet? And can the government afford to cut taxes without risking a wider deficit?
Let’s break it down.
What Is VAT and Why It Matters
VAT is the 12% tax added to almost every product and service you buy — from groceries and restaurant meals to phone bills and utilities.
It’s one of the biggest revenue sources for the government, accounting for around ₱1.4 trillion in annual collections.
That means even a small adjustment to VAT can have huge effects on both prices and government revenue.
What a 10% VAT Could Mean for Consumers
If VAT goes down to 10%, prices would technically drop by around 1.8% on average.
That might not sound like much, but for daily essentials, it adds up:
| Item | Price w/ 12% VAT | Price w/ 10% VAT | Savings |
|---|---|---|---|
| 1-liter cooking oil | ₱120 | ₱118 | ₱2 |
| Electricity bill (₱3,000) | ₱3,360 | ₱3,300 | ₱60 |
| ₱1,000 grocery run | ₱1,120 | ₱1,100 | ₱20 |
For a typical household, that’s about ₱500 to ₱1,000 in monthly savings — not life-changing, but helpful when prices keep rising.
How Much Revenue the Government Loses
According to the Department of Finance (DOF), each 1% cut in VAT means losing roughly ₱120–₱130 billion per year.
So, lowering VAT from 12% to 10% could reduce government income by ₱240–₱260 billion annually.
That’s a lot of money — roughly equal to the entire budget of the Department of Education or DOH for one year.
This is why some economists and officials worry the government might need to borrow more or cut spending to make up for the shortfall.
The Fiscal Balancing Act
The main question is: Can the government afford it?
A VAT reduction helps consumers, but it can also widen the fiscal deficit if not paired with smarter budgeting.
A larger deficit means the government has to borrow more — which could weaken the peso or slow public investment.
But there’s actually a way to offset the revenue loss without raising new taxes or cutting essential programs.
How Removing Unprogrammed Appropriations Can Fund the VAT Cut
Here’s the part that rarely gets discussed: the government already allocates hundreds of billions each year for something called Unprogrammed Appropriations (UA).
UA is a section of the national budget that’s not immediately funded — it’s only supposed to be used when there are excess revenues or new loans.
In practice, however, it has turned into a massive pool of flexible spending.
How Big Is UA?
| Year | Unprogrammed Appropriations | Notes |
|---|---|---|
| 2023 | ₱450 billion | Nearly 10% of total national budget |
| 2024 | ₱281 billion | Covers “support to infrastructure projects” and subsidies |
| 2025 (proposed) | ₱539 billion | Larger than budgets of DOH or DSWD |
Compare that to the VAT revenue loss estimate of ₱240–₱260 billion per year —
and you’ll see that UA alone could cover the full cost of a 2% VAT reduction.
Why UA Is Redundant
Most agencies already have regular budgets under the General Appropriations Act (GAA).
Yet, UA often funds the very same programs — like infrastructure, fuel subsidies, and social aid — creating double allocations.
In short, it’s extra money for projects that already have funding.
And since UA releases don’t require the same level of congressional oversight, it’s often used for politically convenient mid-year spending.
The Smarter Alternative
By removing or drastically cutting UA, the government could:
- Free up more than ₱280 billion (2024 level)
- Fully fund the VAT reduction
- Keep the deficit stable
- Improve transparency and accountability
And the country still keeps:
- Quick Response Funds for calamities
- Contingent Funds for urgent needs
- The option to pass supplemental budgets when truly necessary
No essential service would be affected — just unnecessary budget padding.
Economic Impact of a Lower VAT
If implemented responsibly, a VAT cut could:
- Help reduce inflationary pressure
- Boost consumer spending
- Improve public sentiment and confidence in the economy
Of course, the impact won’t be immediate.
But it sends a clear signal that the government prioritizes affordability and efficiency over revenue hoarding.
Blogger’s Corner
The debate shouldn’t be about “Can we afford to cut VAT?”
It should be about “Why are we still maintaining Unprogrammed Appropriations when every agency already has a budget?”
If we truly want growth that benefits everyone, the answer lies not in collecting more taxes — but in spending smarter.
Scrapping or trimming UA is one simple step toward that goal, and it could make a 10% VAT both possible and sustainable.