Features May 07, 2026

OECD Strategies for Philippine Economic Growth

Q: How does the amended Foreign Investments Act help international entrepreneurs?

The law now allows international investors to fully own and set up small and medium-sized businesses in the Philippines. It also permits 100% equity in firms within sectors where they already have operations, though the report notes that a "one-stop" digital platform is still needed to reduce bureaucratic red tape.

By Rocky Teodoro

The 2026 OECD report offers a roadmap for boosting Philippine business productivity and government tax revenue.

The Organisation for Economic Co-operation and Development (OECD), an intergovernmental organization of 38 countries based in France, has published its first Economic Survey of the Philippines.

The study provides an analysis of the Philippine economy, and gives insights leaders need to pivot resources and pinpoint their next investment. Entrepreneurs may also gain new business ideas based on economic trends.

How The Philippines Can Boost Productivity And Sustain GDP Growth

The Philippines has been one of the fastest-growing market economies the past 15 years, even with major shocks such as the COVID-19 pandemic. Excluding the pandemic downturn and corresponding rebound, the country’s economy has grown more than 6% per year since 2011.

The dominant source of growth is the Services sector, where the country’s young, English-speaking population provides an advantage in the business process outsourcing industry. In 2024, services contributed 63.2% of the nation’s Gross Domestic Product (GDP).

With a target of tripling per capita income relative to 2015 by 2040, the challenge lies in sustaining the country’s growth and continuing to boost its citizens’ living standards.

The country can no longer lean on old growth drivers, however; sustaining high growth requires boosting productivity.

Why Expanding Government Tax Revenue Matters For Business Infrastructure

The country’s public debt, which almost doubled in 2020 due to the COVID-19 pandemic, remains above 2020 levels, and the government’s tax collection is still below its spending.

The national budget deficit for March 2026 increased by 1.96% to P349.7 billion from last year’s P342.9 billion.

Rather than relying on cutting spending, the study suggests the government raise more revenue, such as phasing out value-added tax (VAT) exemptions for private healthcare, education, and senior citizens. Infrastructure investment must also remain at about 5% of GDP to maintain growth momentum.

For professionals, VAT exemptions on essential goods and services - like electricity and fuel - acts as an income boost. The saved money can increase their purchasing power.

Linking Corporate Tax Incentives To Real Business Investments

Frequently Asked Questions

Why does the OECD suggest phasing out VAT exemptions for healthcare and education?

The study suggests phasing out these exemptions—along with those for senior citizens—to help the government raise more revenue rather than relying on spending cuts. Increasing tax collection is seen as essential for reducing the national budget deficit and maintaining infrastructure investment at about 5% of GDP to sustain growth momentum.

How would a VAT exemption affect a small business (MSME) differently than a professional?

For an MSME, a VAT exemption means they do not charge the 12% tax on sales, but they lose the ability to claim “Input VAT” credits, which may keep their operational expenses flat or slightly higher. For professionals, exemptions on essentials like electricity and fuel act as an income boost, increasing their overall purchasing power.

What are "investment-linked tax tools" and how do they differ from tax holidays?

Unlike traditional tax holidays, which offer zero tax regardless of new activity, investment-linked tools require businesses to actually spend money to get the reward. Examples include accelerated depreciation (allowing CEOs to write off equipment costs faster) and investment tax allowances (deducting a portion of spending on new facilities directly from taxes).

What reforms are recommended to lower electricity and internet costs in the Philippines?

To dismantle inefficient monopolies, the study suggests that power distribution firms divest from generation assets and stop retail supply activities. For telecommunications, it recommends requiring dominant firms to share network infrastructure on regulated terms to increase competition and lower prices for consumers.

How does the amended Foreign Investments Act help international entrepreneurs?

The law now allows international investors to fully own and set up small and medium-sized businesses in the Philippines. It also permits 100% equity in firms within sectors where they already have operations, though the report notes that a "one-stop" digital platform is still needed to reduce bureaucratic red tape.