PHP 860B eyed from VAT, sales tax in ’27

The national government (NG) expects value-added tax (VAT) and related sales tax collections to rise by 12.8% in 2027, outpacing overall tax revenue growth despite the current weakness in household consumption.

The 2027 Budget of Expenditures and Sources of Financing (BESF) showed that the VAT and related sales tax collections are expected to increase to PHP 860.03 billion next year from the PHP 762.42-billion program for 2026.

The tally covers VAT and related sales taxes collected by the Bureau of Internal Revenue (BIR), net of VAT refunds, but excludes VAT on imports collected by the Bureau of Customs (BoC).

Overall tax revenues are projected to grow by 9.2% to PHP 4.85 trillion in 2027 from the PHP 4.44-trillion program for 2026.

Taxes on domestic goods and services, which include VAT, excise taxes, and taxes on selected services, are projected to jump by 11.3% to PHP 1.75 trillion in 2027 from the PHP 1.57-trillion program for 2026. The PHP 177.18-billion increase would account for 43.3% of the projected P409.23-billion rise in overall tax revenues.

The projected PHP 97.61-billion rise in VAT and related sales tax collections next year would account for 23.9% of the overall increase in tax revenues and 55.1% of the increase in taxes on domestic goods and services.

VAT would also post the fastest growth among the components of taxes on domestic goods and services.

Excise tax collections are projected to jump by 8.9% to PHP 380.86 billion next year, while taxes on selected services are seen increasing by 9.1% to PHP 164.39 billion.

Philippine Institute for Development Studies Senior Research Fellow John Paolo R. Rivera said the projected increase in tax revenues assumes faster household consumption and economic activity in 2027.

“It is achievable if domestic demand and imports recover next year. It likely assumes stronger household consumption, firmer business activity, and better tax administration and compliance,” he told BusinessWorld via Viber.

Mr. Rivera said the Development Budget Coordination Committee earlier attributed the higher revenue targets for 2027 to tax reforms, digitalization, and enforcement.

For 2027, the government projects revenues to go up by 8.3% to PHP 5.21 trillion, equivalent to 15.7% of gross domestic product (GDP).

“So, yes, the target does imply an expectation that domestic demand improves in 2027, but not necessarily a consumption boom. Part of the increase can also come from better collection efficiency and a broader tax base,” he added.

However, Mr. Rivera said the revenue outlook faces risks from weaker-than-expected consumption, slower investment, softer imports, and another external shock that keeps growth subdued.

The BESF projections already incorporate proceeds from legislated tax reform measures. These measures are projected to have a net revenue impact of PHP 31.96 billion in 2027, up from the PHP 29.47-billion program this year.

VAT on digital services is projected to generate PHP 24.67 billion, the largest amount among these measures, while the Rationalization of the Mining Fiscal Regime and the excise tax on pickup trucks are expected to yield PHP 6.1 billion and PHP 7.44 billion, respectively.

These gains would be partly offset by estimated revenue losses of PHP 4.61 billion from the Capital Markets Efficiency Promotion Act and P1.65 billion from the Corporate Recovery and Tax Incentives for Enterprises to Maximize Opportunities for Reinvigorating the Economy Act.

However, the Department of Budget and Management said they do not yet account for the proposed tax-relief and revenue-generating measures under the Promoting Growth, Revenue, and Equity towards Socio-economic Sustainability tax package.

Estimates by the Department of Finance showed that the proposed measures would generate an average of PHP 47.94 billion in net additional revenues annually from 2027 to 2030.

BIR Collections

Meanwhile, the Bureau of Internal Revenue collected PHP 2.003 trillion from January to July, exceeding its PHP 1.99-trillion target for the period by PHP 13.53 billion or 0.68%. The seven-month tally was 5.4% higher than a year earlier.

BIR Commissioner Charlito Martin R. Mendoza said the agency had already collected around 60% of its full-year target for 2026, reflecting improving taxpayer compliance and sustained collection efforts.

For July alone, gross collections reached PHP 358.44 billion, exceeding the PHP 336.07-billion target by PHP 22.37 billion or 6.66% and 5.73% higher than a year earlier.

“These results show that better taxpayer service, clearer rules, and effective enforcement can support stronger compliance and collection,” Mr. Mendoza said.

The BIR said its reform agenda includes simplifying tax rules and processes, expanding digital services, improving taxpayer assistance, strengthening audit safeguards, and enforcing tax laws against deliberate noncompliance.

Under the BESF, the BIR is projected to collect PHP 3.736 trillion in 2027, up 10.1% from the PHP 3.393-trillion program for 2026.

Peso depreciation

Meanwhile, the BESF showed that a PHP 1 depreciation against the US dollar could narrow the NG’s 2027 budget deficit by PHP 5.7 billion, as higher revenues are expected to more than offset increased disbursements.

The government expects the budget deficit to widen in nominal terms to P1.695 trillion in 2027 from the PHP 1.659-trillion program this year. However, the deficit-to-GDP ratio is projected to fall to 5.1% from 5.4%.

The sensitivity analysis showed that a PHP 1 depreciation would increase revenues by P10.6 billion while raising disbursements by PHP 4.9 billion.

The sensitivity estimate measures the effect of a PHP 1 change from the government’s baseline exchange rate assumption. The government assumes a peso-dollar exchange rate of PHP 60 to PHP 62 from 2026 to 2029.

Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said a weaker peso would increase the peso value of interest payments on US dollar- and other foreign currency-denominated debt.

On the revenue side, he said the increase would be “largely linked to import tax-related revenues, especially at the BoC.”

According to the BESF, import VAT collections are projected to rise by 5.6% to PHP 692.31 billion in 2027 from the PHP 655.89-billion program this year.

Mr. Ricafort said the larger impact on revenues than on disbursements could partly reflect the government’s domestic-heavy debt portfolio.

“A bigger share of domestic borrowings in the total borrowing mix in recent years may have helped,” he added.

The NG’s outstanding debt rose by 2.8% to PHP 19.07 trillion at end-June from PHP 18.55 trillion at end-May. Domestic obligations accounted for 67.33% of the debt stock, while the remaining 32.67% came from external sources.

The government plans to raise PHP 3.304 trillion in gross borrowings in 2027, a 20.9% increase from the PHP 2.734-trillion program this year.

Of the proposed gross borrowings, 72.3% would be from domestic sources. Gross domestic borrowings are projected to increase by 24.5% to PHP 2.389 trillion from this year’s PHP 1.918-trillion program.

The remaining PHP 914.982 billion would be raised from external sources, up 12.2% from the PHP 815.505-billion program for 2026. — Justine Irish D. Tabile, Senior Reporter