Reduce congressional corruption by 50 percent! And the Philippines will be better off, even with the total elimination of Recto’s VAT.

The economic gains from substantially cutting corruption are estimated to far outweigh the revenue lost from VAT. Invigorated and honest BIR and BoC tax collections will overwhelm the perennial need for cash!

Impact of reduced corruption

Corruption is a major impediment to the Philippine economy, with estimates suggesting the losses at P700 billion to P1.4 trillion annually across all levels of government. Some estimates of losses from national-level corruption go as high as P1.6 trillion to P2 trillion annually when applying the 20 percent of budget metric to recent budgets.

A 50-percent reduction in corruption would free up a massive amount in public funds, estimated at trillions of pesos over a decade, that could be redirected to productive economic sectors like education, health and infrastructure.

Key benefits of reducing corruption include:

1. Faster Economic Growth: Economists estimate the Philippine economy could grow 2 percent higher than the usual growth estimated annually, if corruption were reduced.

2. Improved Public Services: Funds saved could finance critical infrastructure (roads, flood control systems), build more schools and clinics, and fund social programs for the poor.

3. Reduced Borrowing and Debt: Under the current practice, government is forced to borrow more than necessary due to fund leakages, such as stolen BIR and BoC collections and rampant smuggling. Reducing corruption would decrease the need for borrowing, improve the country’s credit rating and loan interest costs.

4. Increased Confidence: Reduced corruption would boost consumer and investor confidence, which are dampened by the high-profile corruption scandals.

The impact of zero VAT

The VAT is a significant source of government revenue. In 2024, the BIR collected P643.85 billion in VAT.

What is outrageous is the monstrosity of taxing even the food that the aged and persons with disabilities take to nourish their fading life.

Eliminating the VAT entirely, however, means losing a substantial revenue stream.

Immediate effect of zero-VAT policy would likely be:

1. Lower Prices: The cost of goods and services would decrease, providing immediate relief to households and stimulating greater consumption.

2. Fiscal Deficit Worsening (initially): The government would face a massive immediate shortfall that would need to be addressed through other means such as new taxes or increased borrowing to maintain current spending levels.

But the massive immediate shortfall would be simply hypothetical because the invigorated and honest BIR and BoC tax collections would far outweigh the consequential cash necessity.

The net outcome

The savings from a hypothetical 50-percent reduction in corruption (which falls within the estimated range of the annual losses) is comparable to or could potentially exceed the total annual VAT revenue.

The Philippines would be better off because:

1. The net financial impact would be positive if the anti-corruption measures successfully recover more funds than the VAT generates.

2. Efficiency Gains: The quality of spending would improve dramatically. Funds previously lost to ghost projects and kickbacks could now be used for actual, impactful development projects.

3. Systemic Improvement: Addressing the root cause of systemic leakages (corruption) offers long-term, sustainable economic benefits and national development that temporary tax revenues and relief programs cannot match.

Ultimately, redirecting vast sums of money from illicit activities to the formal, productive economy would fundamentally strengthen the nation’s fiscal health and long-term development prospects.

Email: arturobesana2@gmail.com