Digital service tax could generate P29B in revenues

IMPOSING taxes on digital services may raise about P29 billion in annual revenues for the government, a congressman said on Tuesday.

House Ways and Means Committee Chairperson Albay Rep. Jose Maria Clemente S. Salceda filed House Bill No. 6765 or the “Digital Economy Taxation Act,” which seeks to impose a 12% value-added tax (VAT) on digital advertisements, internet-based subscriptions and transactions made on electronic commerce (e-commerce) platforms.

“No new taxes here, we just want them to pay their fair share. Assuming you’re a company that sets up in the Philippines, and you do video-streaming or music-streaming services, you will definitely pay taxes. But companies like Netflix and Spotify don’t. That’s obviously not fair,” Mr. Salceda said in a statement on Tuesday.

“When you’re a network in the Philippines, advertising services paid to you will be subject to VAT (value-added tax). But Google and Facebook are not subject to VAT for advertising. Ang laki po ng kinikita nila sa mga Pilipino, pero ni isang kusing ng VAT, wala (They earn so much from the Filipino people, but they don’t pay a centavo of VAT), ” he added.

Finance Secretary Carlos G. Dominguez III said taxing the digital economy is “something to seriously consider” to plug leakages.

“It’s to be able to collect VAT,” Mr. Dominguez told reporters via Viber on Tuesday.

Bureau of Internal Revenue (BIR) Deputy Commissioner for Operations Arnel S.D. Guballa said it is “about time” for the Philippines to capture these tax leakages on digital transactions.

“Every sale of goods or services are taxable, whether manual or digital. On digital transactions, [it’s] about time to be high-tech to capture [leakages],” Mr. Guballa said in a text message.

Mr. Salceda’s bill will make “network orchestrators like Grab Philippines, Angkas, and other similar services that link customers and providers as withholding agents for income taxes,” in order to boost tax compliance. Also included are “network orchestrators” for leasing services such as Airbnb and e-commerce platforms such as Lazada and Shopee.

Under the bill, VAT will be imposed on all services “rendered electronically,” which includes digital advertising on Google and Facebook and subscription services such as Spotify and Netflix.

“This will, once and for all, set a statutory clarification of a long-standing question of whether services rendered electronically can be subjected to VAT,” Mr. Salceda said in the bill’s explanatory note.

The measure will also require digital service providers to establish a resident agent or representative office in the Philippines.

“This addresses the issue of businesses having a significant presence in a country without having a physical establishment here that could be held liable for tax and regulatory purposes, improving our revenue intake while being better able to protect consumers from unfair trade practices,” Mr. Salceda said.

Using “conservative” figures, Mr. Salceda estimated the measure will generate P29.1 billion in annual revenues for the government. About P9.7 billion will come from e-commerce platforms that will serve as withholding agents for VAT.

VAT on digital advertising is expected to generate P4 billion, while other digital services such as games will generate P2.9 billion. VAT on subscription-based services such as music streaming and video streaming services will yield about P2.2 billion.

Corporate income tax on digital service providers is also expected to raise P5.7 billion.

“The bill responds to the increased urgency of finding new sources of revenue to fund the country’s efforts to recover from the adverse impact of COVID-19, and anticipates the increasing digitization of the country’s economy,” Mr. Salceda said.

Earlier this month, the Finance department submitted a draft proposal on a “digital economy VAT” to lawmakers, which it said would generate P15 billion in revenues in 2021, P16.6 billion in 2022 and P18.4 billion in 2023. — Genshen L. Espedido and Beatrice M. Laforga