Re-filed digital economy tax bill promises ₧226.5B

ALBAY Rep. Joey Salceda has re-filed the proposed Digital Economy VAT Law that, he said, could yield P154 billion in incremental revenues over five years.

Together with Salceda’s proposed digital-economy taxation service, which could yield another P72.5 billion over five years, reforms in tax administration could yield up to P226.5 billion over the medium term.

House Bill (HB) 372 seeks to close ambiguities in the value-added tax system that, Salceda said, have allowed some digital services and goods sold over the digital space to remain outside the coverage of VAT. The bill was approved on third and final reading in the lower house during the 18th Congress.

According to Salceda, the measure seeks to level the playing field between traditional and digital businesses by clarifying the imposition of VAT on digital service providers (DSPS) like Apple Music, Spotify and Deezer.

The lawmaker said he hopes the fiscal space from the proposal will provide fiscal space to support digitalization of small businesses, a national broadband network and jobs centers and training for digital freelancers.

He added that the tax administration measure will support the fiscal program of President Ferdinand R. Marcos Jr.

“The digital economy is growing rapidly, but digital economy taxation is falling flat. Imagine, in 2019, the digital economy tax collections of the BIR was at P45 billion,” Salceda, former research director of Barings Securities Philippines Inc. (now ING Group), said. “By 2020, it was still at around P45 billion. That’s hardly believable given the increase in digital transactions.”

Play catch-up

SALCEDA sought to clarify he is not proposing for a new tax.

“We pay VAT for almost all goods and services, except those specifically exempted by law,” he said. “It goes without saying that the digital economy should be subject to VAT, but we are unable to capture these revenues because of ambiguities in tax laws.”

The bill clarifies that digital services—digital advertising, subscriptionbased services and other online services—that can be delivered through the internet are Vat-able. The measure also aims to strengthen tax compliance through simplified invoicing and registration requirements for Vat-registered nonresident DSPS.

“Goods sold over the electronic space, meanwhile, should not need any further legislation to be covered,” Salceda said.

He, however, proposed to the Bureau of Internal Revenue (BIR) to establish a digital economy taxation service to have a dedicated unit for the growing digital sector, particularly the online shopping of goods. The bill defines a “digital service provider” as an entity that provides services or goods to a buyer through an online platform. The purpose may be for the buying and selling of goods or services or by making transactions for the provision of digital services on behalf of any person.

“Our tax system really needs to catch up to the digital economy, which grows and changes by the day,” Salceda said.

Diokno’s thoughts

THE lawmaker added that they are also considering providing a framework for the taxation of digital assets such as non-fungible tokens, cryptocurrency and others.

Salceda said he plans to create a technical working group (TWG) on digital asset taxation within the House Committee on Ways and Means “to study whether these assets can be considered services and therefore Vatable, or should be taxed differently.”

He noted that Finance Secretary Benjamin E. Diokno also has his own opinions on digital currencies, being from the Bangko Sentral ng Pilipinas as its governor. “His thoughts will determine much of the direction of that TWG’S work,” Salceda added.

Meanwhile, the lawmaker also seeks to clarify the tax regime for digital gambling.

“Unlike underground or informal gambling, we can capture digital gambling revenues through the payment systems employed. So, I am also deputizing a TWG for ‘Digital Betting and Amusements Taxation’ to make recommendations to the Committee,” Salceda said.

“Of course, all of these will also require that the BIR is digital-ready. So, we will continue to work with BIR on digital tax registration and payment, electronic invoicing, big data tax analytics and other digitalization efforts, including the use of electronic data for risk-based auditing,” Salceda added.

Consumer burden

HOWEVER, Salceda’s proposal is not going well with some pundits.

On Sunday, former Bayan Muna Rep. Carlos Isagani Zarate hit the plan to impose a 12-percent VAT on providers of online services like Netflix, Spotify and Lazada, as he believes that it will ultimately be the “consumers who would be carrying this additional burden.”

“Even the claim [it would be] the foreign company that is being taxed is specious as it is still the consumers who will foot the bill in the end since VAT is a pass-on tax,” Zarate said. “It would mean higher subscription fees, service charges and, even prices of online products. That is why this tax is anti-consumer.”

The human rights lawyer added that “the proposed tax is another measure that hits the poor and middle class more than the rich and big corporations.”

If the government really wants to increase its coffers, Zarate said it should embark on a progressive tax system that taxes directly the rich and big corporations more rather than the poor.

He cited as example a wealth tax of 1 percent can be levied on every million earned by an individual, family or corporation “or a tax scheme to that effect.” Zarate said government can also vigorously go after the Philippine Offshore Gaming Operators (POGOS) “and have them pay their billions worth of accrued taxes.”

“It is tragically ironic that the government wants to tax the poor more but it rushed the passage of the CREATE [law, or Republic Act 11534] that that would lower the income tax rate of corporations and the rich and will result to an estimated P259-billion revenue loss for the government until 2022,” he added.

This proposal is definitely anti-consumer and must be opposed, junked and buried, Zarate said.