IMF to Philippines: Broaden tax base, avoid tax amnesties

MANILA, Philippines — In advising the Philippines to expand its tax base and avoid tax amnesties, the International Monetary Fund (IMF) emphasized that revenue enhancement should not come at the cost of public investment. Speaking after its 2026 Article IV mission, the IMF highlighted that the government's fiscal stance remains suitable in the short term, with the budget deficit expected to decrease to 5.4 percent of GDP this year and further in 2027.

However, the medium-term objective of reducing the deficit to 3.5 percent of GDP by 2030 should focus on enhancing revenue mobilization. Andrea Pescatori, the IMF mission leader, advocated for broadening the value-added tax (VAT) base, taxing luxury goods and products detrimental to health and the environment, and improving tax incentive governance.

The IMF explicitly discouraged tax amnesties, citing that while they may boost short-term revenue, they risk weakening compliance and setting expectations for future reliefs. Pescatori pointed out VAT exemptions and compliance gaps as areas for potential revenue increase. The Philippines applies a standard 12-percent VAT on most goods and services, yet actual collections fall short of the headline rate due to exemptions and inefficiencies in the system.

Regarding personal income tax exemptions and micro/small enterprise exemptions, Pescatori had insufficient information to evaluate these proposals. However, he noted that broader exemptions might conflict with revenue goals unless offset by other measures. The IMF emphasized that its revenue recommendations are medium-term (3-5 years) and do not preclude temporary relief during economic stress periods.