Keep VAT, cut business costs and cut MUP pension
October 23, 2025 | 12:00am
https://www.philstar.com/business/2025/10/23/2481801/keep-vat-cut-business-costs-and-cut-mup-pension
Three recent reports in The Philippine Star caught my attention: “Fiscal reforms to steer ‘A’ credit rating – DBCC” (Oct. 20), “Ralph Recto stays as DOF chief, says Palace” (Oct. 21) and “MUP pension budget hiked by over a third” (Oct. 21).
The first story is good; we should keep aiming for an upgrade in credit ratings from the current “BBB+” to “A.” The second story implies that some wicked groups want to head the Department of Finance (DOF) and are seeking Secretary Ralph Recto’s position, but President Marcos said no. The third story should alarm taxpayers: the Military and Uniformed Personnel (MUP) did not and still do not contribute to their own pension funds while in active service. When they retire, all their benefits will be shouldered again by taxpayers.
Then there are three good recent reports in BusinessWorld: “DOF vows to address businesses’ tax concerns” (Oct. 16), “Growth goal still ‘attainable’ — DBM” (Oct. 17) and “Philippines likely to hit low-end of 2025 GDP target – Balisacan” (Oct. 17).
For me, these are all good reports because the DOF is listening to and acting on valid concerns from the business community, both households and corporations which constitute about 80 percent of total GDP. The target growth for the full year 2025 of 5.5 percent to 6.5 percent should be kept despite the impact of the series of strong storms and earthquakes that damaged many private properties and public infrastructure, as well as the demoralizing effect of continuing corruption scandals at the DPWH and other departments.
So, I still support the economic team — Finance Secretary Recto, Budget Secretary Amenah Pangandaman, Economic Secretary Arsenio Balisacan and Presidential Investment Adviser Frederick Go — in their persistent work and economic optimism.
The Philippines’ GDP growth in the first and second quarters (Q1 and Q2) of 2025 is 5.5 percent; Q3 data will be released on November 8. Around the world, so far, only four countries — all in Asia — have released their Q3 2025 GDP performance. Their Q3 and average Q1–Q3 growth rates respectively are as follows: Vietnam 8.2 and 7.8, Malaysia 5.2 and 4.7, China 4.8 and 5.1 and Singapore 2.9 and 3.8.
So, if the Philippines grows between 5.5 and 6.0 percent in Q3, the average Q1–Q3 will be around 5.6 percent, lower than Vietnam but higher than Malaysia, China and Singapore.
About the brain-dead proposal that the government should abolish the 12 percent VAT to help consumers and reduce the inflation. I say brain-dead because their proposal does not include a corresponding plan to have large-scale spending cuts, like the abolition of some agencies or certain welfare and subsidy programs. We cannot have large-scale tax cuts unless accompanied by large-scale spending cuts.
My view on this is that VAT can be reduced from 12 percent to 10 percent or lower, but only if coupled with (a) the abolition of VAT exemptions (they pay zero VAT) for many sectors and (b) spending cuts elsewhere. VAT cannot be reduced unless these two accompanying measures are done either simultaneously or phased in a year or two before or after the VAT cut.
Our 12 percent VAT or sales tax is among the highest in East Asia, along with China’s 13 percent and Indonesia’s 12 percent. Other neighbors have lower rates: 10 percent in Japan, South Korea, Cambodia, Laos, Malaysia and Vietnam; nine percent in Singapore; seven percent in Thailand; five percent in Taiwan; and zero in Hong Kong.
Many sectors pay 12 percent while several sectors pay zero. This is wrong and distortionary. Once you exempt one sector from VAT payment, other sectors will also lobby hard for similar privileges and produce all sorts of bleeding-heart arguments and overall public finance conditions suffer.
The only sectors that should have zero VAT are raw agricultural and fishery products, like kangkong, kamatis, and tilapia — and imported materials for personal use, like pasalubong shoes and clothes for family members, to avoid hassle and corruption in the international airport arrival area for Filipinos.
The MUP (AFP, PNP, PCG, BFP, BJMP, BUCOR and NAMRIA) should pay for their own pensions someday when they retire, and not take everything from taxpayers. The MUP pension in the budget is P111 billion in 2024, P145 billion in 2025, and P198 billion in 2026, as proposed by the House of Representatives.
For me, this is a scandalous figure. Government doctors and nurses, teachers and educators, lawyers and engineers, agriculturists and local government personnel, among others, did not seek this kind of corrupt setup. They contributed to their own pension while in active service.
In addition, there is no “indexation” of retirees’ pensions from the existing salaries of active personnel among non-MUPs. MUP indexation is horribly unfair to taxpayers. A retired police or military general who retired 10 years ago with a monthly pay of, say, P50,000, but whose current counterpart now earns P200,000, will also get P200,000 per month — tax-free — not the P50,000 that was their last salary.
We need to cut waste, excess and abuse in the public sector. Taxpayers are not forever milking cows. Either they will try to under-declare taxes as the government remains wasteful, or they will join the waste by declaring themselves poor and entitled to endless subsidies and freebies.
No comments:
Post a Comment