Finance Secretary Ralph Recto on Tuesday cautioned senators against approving a proposal to cut the value-added tax (VAT) rate from 12 percent to 10 percent, warning that such a move could significantly increase government debt and risk a credit rating downgrade.
Speaking during a Senate budget hearing, Recto said the proposed two-percentage-point reduction could lead to a revenue loss of up to P300 billion from the projected P1.5 trillion in VAT collections—an amount that, he stressed, would not even be enough to cover the government’s payroll.
“For 2026 alone, the government will need P1.7 trillion just to pay salaries,” Recto noted.
“I leave it to Congress to decide whether to pass the bill. But my warning is this: Doing so could result in a credit rating downgrade,” he added.
Recto emphasized that many of the government’s infrastructure projects, including roads and bridges, are funded through borrowing. A reduction in revenue, he warned, might force the government to turn to the debt market just to finance day-to-day operating expenses.
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