Digital tax could yield P29.1-B new revenues

THE CHAIRMAN  of the House Committee on Ways and Means on Tuesday said the government could raise an additional PHP29.1 billion annually in incremental revenues by implementing digital services taxes.   

Albay Rep. Joey Salceda filed House Bill 6765, which seeks to establish a fiscal regime for the digital economy.

“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," he said.

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,” he added.

Salceda said the bill responds to the increased urgency of finding new sources of revenue to fund the country’s efforts to recover from the adverse impacts of the coronavirus disease (Covid-19) and anticipates the increasing digitization of the country’s economy.

He said that this tax administration proposal aims to fairly capture the value created into the tax system, which will lead to five key changes to the way the digital economy is currently taxed.

The bill seeks to make “network orchestrators” like Grab, Angkas, and other similar services as withholding agents for income taxes, to ease their partners of the burden of having to pay their own taxes, while also encouraging tax compliance.

It shall clarify that services rendered electronically in the course of trade or business are liable to VAT.

It would also clarify that digital advertising by internet giants such as Google and Facebook and subscription-based services such as those of Netflix and Spotify are subject to VAT.

Network orchestrators for lease services such as Airbnb and electronic commerce platforms such as Lazada and Shopee shall be made withholding agents for VAT.

The bill requires those who render digital services to do so through a resident agent or a representative office in the Philippines.

This seeks to address the issue of companies having a significant presence in the country without having a physical establishment in the Philippines not being liable for tax and regulatory purposes.

Salceda noted that the bill ensures consumer protection, as most of these companies are considered “runaway services”.

“Kapag may reklamo ka, paano mo sisingilin, wala namang opisina sa bansa, kaya wala naman kaming pwede panagutin (If you have a complaint, how would you hold them responsible, if there is no physical office in the country? There is no means of accountability),’ he said.

Salceda also added that his tax proposal will not affect social media users who do not advertise on these platforms.

“If anything, these social media platforms need you, the user, to keep using, so that they could earn from digital advertising, the same way TV networks need viewers so they could get advertising contracts. So, the usual social media channels will definitely remain free,” he said.

“The whole idea that somehow, this bill will make social media networks charge users who don’t advertise, that’s a bad reading of the proposal,” he added.