DoF to review OECD call to phase out VAT exemptions for senior citizens, private schools

By Beatriz Marie D. Cruz, Reporter

THE DEPARTMENT of Finance (DoF) is reviewing the Organisation for Economic Co-operation and Development’s (OECD) suggestion for the Philippines to remove the value-added tax (VAT) exemptions for senior citizens, private education and healthcare providers.

“OECD has a lot of good suggestions, but we have to study them. We’ll see which ones we can do, which ones we cannot do,” Finance Secretary Frederick D. Go told reporters on Feb. 18.

The OECD in a report last week recommended that the Philippines phase out VAT exemptions for senior citizens, private healthcare and education, as part of efforts to reduce public debt and narrow its budget deficit. 

The Philippines imposes a 12% VAT on sales, leases, barter, and imports of goods and services. However, senior citizens are granted a 12% VAT exemption under Republic Act No. 9994 or the Expanded Senior Citizens Act.

Private healthcare and educational institutions also benefit from tax breaks.

At the same time, business groups said the government should focus on plugging tax leakages and addressing corruption and smuggling, instead of removing VAT exemptions and tax incentives.

“If you look at our VAT system, there’s still a lot of inefficiencies. While the VAT exemption is being seen as a leakage, I would say that there are many more leakages in terms of execution,” Makati Business Club Chairman Edgar O. Chua told BusinessWorld on the sidelines of the Philippine Business for Education (PBEd) Leadership Forum on Feb. 18.

Management Association of the Philippines President Donald Patrick L. Lim said the OECD’s proposal should be assessed for its social and inflationary impacts.

“While broadening the VAT base and modernizing corporate incentives can strengthen fiscal sustainability and transparency, reforms must not undermine our regional position in attracting investments or weaken protections for vulnerable sectors,” he said in a Viber message.

Mr. Chua said the government should focus on curbing loopholes in its tax collection system, citing rampant smuggling in the country.

LEAKAGES
The Philippines’ VAT collection efficiency is just about 35% to 40%, significantly lower than the Southeast Asian average of 57%, Asian Consulting Group Chairman and Chief Executive Officer Raymond A. Abrea told a forum on Feb. 17.

In comparison, Thailand has the highest VAT collection efficiency of 71% to 79% despite having the lowest VAT in the region of 7%.

“I guess our VAT system should be better managed to make sure there are no leakages. If it’s not managed properly, I’m sure people are finding their ways around it,” PBEd President and Co-founder Chito B. Salazar told BusinessWorld.

The Philippines’ total outstanding debt ballooned to P17.71 trillion in 2025, bringing the debt ratio to a 20-year high of 63.2% of the gross domestic product (GDP).

The OECD estimates the country’s public debt share of the GDP to hit 62.4% in 2026 before declining to 61.6% in 2027.

Federation of Philippine Industries Chairman Elizabeth H. Lee said removing tax relief for senior citizens, schools, and hospitals would dampen consumption and raise costs for vulnerable sectors.

“Any abrupt changes could ripple through households and, at the margins, labor markets, affecting employment and service access. Safeguards are essential and we must be sensitive on the effects of these changes,” she said in a Viber chat.

Jose Rene D. de Grano, president of the Private Hospitals Association of the Philippines, Inc., said the government should focus on addressing corruption to improve its tax take.

“If only we remove corruption in these agencies, there is no need to remove these exemptions and social aids,” he said via Viber.

Anthony C. Leachon, former president of the Philippine College of Physicians, said via text message that removing VAT breaks for private healthcare providers can increase operating costs, translating to higher costs for Filipino patients.

The OECD also recommended the Philippine government phase out tax holidays and focus on expenditure-based corporate tax incentives “to realign incentives with efficiency and fiscal discipline.”

Mr. Lim said a shift toward expenditure-linked incentives is “a positive direction,” but its implementation must be predictable and aligned with regional benchmarks.

“The Philippines competes directly with Vietnam, Indonesia, Thailand, and Malaysia for capital. Our tax reforms must enhance, not dilute, our attractiveness as an investment destination,” he said.