BIR banks on growth to revive tax take this year

By Adrian H. Halili, Reporter

THE PHILIPPINES’ tax authority is betting that faster growth, a rebound in public works and changes to audit rules will help revive revenue after a disappointing year, even as confidence was shaken by allegations of corruption tied to infrastructure spending.

The revenue increase also hinges on infrastructure spending and administrative reforms aimed at improving tax compliance, Internal Revenue Commissioner Charlito Martin R. Mendoza told BusinessWorld on the sidelines of a Senate hearing on Tuesday.

The Bureau of Internal Revenue (BIR) is targeting P3.431 trillion in collections in 2026, a 10.5% increase from P3.105 trillion raised last year, after falling short of its 2025 goal. The agency is shifting its focus toward voluntary compliance as it tries to rebuild trust among taxpayers while supporting the government’s fiscal position.

Economic growth above 5% would increase income and excise tax collections, Mr. Mendoza said. He added that an acceleration in infrastructure projects would have a “big multiplier effect” on tax receipts.

The economy expanded just 4.4% in 2025, well below 5.7% growth a year earlier and short of the government’s 5.5% to 6.5% target. Growth slowed as public construction weakened amid a corruption scandal in which senior officials and engineers were accused of siphoning off billions of pesos meant for flood control projects.

That episode dented investor confidence and disrupted project rollouts, weighing on domestic demand and tax intake. Collections missed the target last year as uneven activity and enforcement bottlenecks persisted, prompting the BIR to recalibrate its approach.

Mr. Mendoza said the agency is relying less on aggressive audits and more on administrative reforms designed to encourage compliance.

Central to that effort is a revamp of audit authorizations under Revenue Memorandum Order No. 1-2026, which took effect after months of complaints from businesses.

The order introduced a single-instance audit framework, limiting audits to one taxpayer per year. It also clarified the scope of audit authority, adopted risk-based and system-assisted case selection and anonymized examiner assignments to reduce discretion.

These reforms “will boost taxpayer confidence,” Mr. Mendoza said. “Our focus is really on voluntary compliance.”

CLEAR STANDARDS
The changes follow a two-month suspension of audits late last year after lawmakers and business groups alleged that some tax officials abused letters of authority (LoAs) and mission orders. Audits resumed on Jan. 27 under the revised framework.

“With these reforms… standards are clear and accountability is enforced,” the BIR chief told senators during the hearing.

The Senate Blue Ribbon Committee is investigating corruption within the BIR, including claims that personnel pocketed a large share of collections.

Mr. Mendoza told the body at least 30 personnel are under investigation over their misuse of audit documents, as the Senate continues to probe the weaponization of the agency’s letters of authority.

He added that 25 of the workers under investigation are set to be charged either with administrative, civil, or criminal cases.

Foreign chambers and local firms have said unpredictable audits added to operating risks and discouraged investment.

Economists said revenue recovery is possible, but hinges on whether growth and spending rebound in a sustained way.

“Faster economic activity and a ramp-up in infrastructure projects will naturally lift tax take,” Jonathan L. Ravelas, senior adviser at Reyes Tacandong & Co., said in a Viber message. He added that changes to audit rules could improve predictability and trust.

“When people see fairness and clarity, compliance rises,” he said.

Still, risks remain. Infrastructure spending must accelerate meaningfully to offset last year’s drag, while restoring investor confidence is critical after the flood control scandal exposed governance weaknesses.

John Paolo R. Rivera, a senior research fellow at the Philippine Institute for Development Studies, said tax performance would depend on how quickly growth firms up and whether public spending regains momentum.

“Faster infrastructure rollout and improved business activity typically widen the tax base and lift value-added tax, income and corporate tax collections,” he said via Viber. Better compliance can raise efficiency without increasing rates, he added.

Revenue recovery also depends on stabilizing consumption, managing inflation pressures and continuing digitalization to reduce leakages, Mr. Rivera said.

For the government, stronger collections are key as it balances higher spending needs with deficit management. The Marcos administration has signaled that shoring up revenue is a priority after last year’s shortfall narrowed fiscal space.

Mr. Mendoza said the BIR would continue refining its reforms as implementation proceeds. “We will keep listening, monitor outcomes, and refine measures where necessary,” he said.

The agency earlier suspended the issuances of audit documents, but the ban was lifted two months later after reforms were implemented.

Mr. Mendoza said about 45,000 active LoAs would be consolidated into one electronic LoA per taxpayer per taxable year, unless a formal request is made to retain separate issuances.