Philippines should fix tax gaps and procurement, not raise tax rates – WB

Marian Hukom

Procurement reforms alone – such as bundling demand and placing orders in bulk – could save the government up to P435 billion annually

AT A GLANCE

• The Philippines can improve tax revenue without raising rates by enhancing tax collection efficiency and reducing exemptions, as suggested by the World Bank.
• The World Bank estimates that better compliance and streamlined tax regulations could increase government revenue by 0.5% to 1.8% of GDP, while addressing noncompliance could add another 0.3% to 0.8%.
• Procurement reforms could save the government 1.8% to 2% of GDP annually by consolidating purchases and negotiating better prices, potentially resulting in savings of up to P435 billion.

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MANILA, Philippines – The Philippines doesn’t necessarily need to raise tax rates to get more money if it gets better at collecting the taxes that it’s already owed and spending what it already has more efficiently.

The World Bank estimates that the gap between what the government could theoretically collect from value-added tax (VAT), corporate income tax (CIT), and personal income tax and what it actually collects exceeds 11% of gross domestic product (GDP).

“Within those three major taxes, our key message is that you can get a lot of mileage out of just improving implementation… being very selective about which VAT exemptions you offer based on cost-benefit analyses,” World Bank senior economist Jaffar Al Rikabi said during the launch of the lender’s Philippines Public Finance Review on Monday, September 28. 

To improve the existing tax system, the World Bank suggested to focus on making compliance easier for businesses and individuals, strengthening collection of taxes already owed, and gradually narrowing exemptions and incentives that shrink the tax base.

Among its recommendations, the World Bank wants the government to use the Ease of Paying Taxes Act to consolidate overlapping tax rules and reduce the costs of compliance. Together with rationalizing corporate income tax incentives under the CREATE and CREATE MORE Acts, the World Bank estimates that the government could generate additional revenue equivalent to 0.5% to 1.8% of GDP. 

Expanding e-invoicing, matching taxpayer information against third-party data, and strengthening audit capacity could add another 0.3% to 0.8% of GDP currently lost to noncompliance, according to the report. 

Making compliance easier though will be no small task. As it stands, businesses in the Philippines have to contend with an estimated 4,835 pages of implementing rules, according to the World Bank. Since 1997, the country has enacted 43 tax laws covering 751 pages, which in turn spawned more than 525 Revenue Regulations and 1,600 Revenue Memorandum Circulars. 

In other words, paying taxes in the Philippines can involve wading through thousands of pages of frequently amended rules. That complexity pushes up compliance costs, forcing firms to spend more time and money on making sense of these regulations, often with the help of accountants and lawyers, while also increasing the chances of mistakes and late payments. 

The Philippines’ overall tax-to-GDP ratio stood at 14.6% in 2025, around 6.5-percentage points below the average for upper-middle-income economies. (READ: The Philippines is now upper-middle income. Why doesn’t it feel that way?)

 “The short answer is that we are not recommending any tax rate increase,” World Bank division director Zafer Mustafaoglu said on Monday. “What we’re recommending [is] that there’s a lot of space to collect more by increasing efficiency and broadening the base.”

Procurement reforms

The World Bank estimates that the government could also save around 1.8% to 2% of GDP a year simply by buying more strategically, without purchasing fewer goods and services. Public procurement is spread across roughly 41,000 government buyers, which often purchase similar items separately and at very different prices. 

World Bank senior economist Jaffar Al Rikabi said agencies and local government units can end up paying different prices because they buy in different volumes, at different times, and in different locations. 

The lender’s proposed fix is to bundle demand and negotiate framework agreements with suppliers so agencies can acquire the same goods and services at common prices even if they buy different quantities at different times. 

Described by the World Bank as one of the quickest wins, the government could save up to P435 billion annually from procurement reforms. – Rappler.com