Legarda’s bill seeks VAT tiering scheme

Senator Loren Legarda has unveiled a three-pronged legislative push to lighten the load on Filipino households by overhauling the country’s value-added tax (VAT) system.

The proposed measures seek to trim the general VAT rate, exempt essential goods and services, and correct long-standing distortions in electricity billing, reforms she said are designed to deliver relief without undermining fiscal stability.

“Relief must be responsible,” Legarda said. “We can ease the burden on ordinary families without draining government funds. This reform lowers VAT where it matters most — on everyday consumption — while ensuring that those who can afford luxury and premium goods continue to contribute fairly.”

Under Senate Bill 1851, or the Differentiated Value-Added Tax Rates Act, the general VAT rate would be reduced from 12 percent to 10 percent. However, the 12 percent rate would remain in place for luxury, premium, and environmentally harmful goods and services. High-end motor vehicles, premium residential real estate, designer items, private aircraft and watercraft, sin products and hazardous goods would continue to be taxed at the higher rate, ensuring that relief for consumers does not come at the expense of government revenues.

Regressive schedule

“Why should basic goods and luxury items pay the same VAT?” Legarda asked. “Poor households spend a much larger share of their income on food and essential needs. When we tax survival and luxury at the same rate, the burden falls disproportionately on those with the least capacity to absorb it.”

Senate Bill 1857, or the Murang Bilihin at Serbisyong Medikal Act, exempts basic commodities, utilities, and medical services from VAT. Covered items include over-the-counter medicines, first-aid supplies, canned goods, noodles, bread, cooking oil, laundry soap, sanitary products, residential water and electricity consumption within lifeline thresholds and basic internet access.

“Electricity for basic household use is not a luxury; it is a daily necessity that keeps our homes functioning and our children studying,” Legarda said. “If we are serious about easing the burden on Filipino families, we must ensure that the tax system does not unnecessarily inflate their power bills.”

Senate Bill 1859 clarifies the VAT treatment of electricity subsidies and statutory charges under the Electric Power Industry Reform Act.