Senate panel hears support for 12% VAT on Digital Services Bill


By Alyssa Nicole O. Tan

GOVERNMENT AGENCIES and industry representatives have told a Senate committee they support a bill to impose a 12% value-added tax (VAT) on digital transactions, to ensure proper treatment equal tax for traditional and digital businesses.

The measure clariIfes the VAT status of digital service providers, according to Sen. Pilar Juliana S. Cayetano, who chairs her House Ways and Means Committee, during a hearing on Bill 7425.

“This measure will also generate revenue from new sources to fund the country’s efforts to recover from COVID and other expenses. Digital transactions have exploded during the pandemic. Lockdowns and quarantine restrictions have pushed cost-conscious consumers and suppliers into the digital economy,” she added.

Citing data from the World Bank’s 2020 digital report, the finance ministry said the number of internet users in the Philippines rose to 73 million during the most restrictive phases of the quarantine. Average number of hours Filipinos spend on the internet exceeded Iffive hours instead of four due to mobility restrictions.

“We fully support the passage of this bill. This is timely legislation,” Office of Internal Revenue Assistant Commissioner Larry M. Barcelo said during the hearing.

“It is high time to put businesses, especially those run by non-resident foreign entities, on an equal footing with traditional brick-and-mortar businesses to level the playing field,” he said. he adds.

Deputy Director of Trade and Industry Marie Sherylyn D. Aquia of the Office of International Trade Relations said the Commerce Department welcomes a feature of the bill.Ifthe tax treatment of facilitated goods and services, given the explosion in deliveries of goods ordered online.

“The government should continue to look for ways to close loopholes in the tax system that allow some businesses toft profits away from where economic activity and value creation takes place,” she said.

The measure would impose a 12% VAT on the digital sale of services such as online advertising, subscription services and the supply of other electronic and online services that can be supplied via the Internet, such as mobile applications, online marketplaces, online software licenses. , and webcasts, among others.

It would also add a new section to the 1997 National Internal Revenue Code that would require foreign digital service providers collect and remit VAT for all transactions that go through their platforms.

Bangko Sentral ng Pilipinas (BSP) Deputy Director of the Payment System Oversight Department, Bridget Rose M. Mesina-Romero, said the measure was necessary to update the VAT regime in a way to help it keep up with the rapid transformation of the digital economy.

However, the additional tax burden may hamper the recovery of small businesses, including gig workers who depend on digital channels to continue earning a living, as it may lead to lower incomes, she said.

As such, the BSP has proposed VAT exemptions for low-value digital transactions up to P500, as well as service fees charged by payment service providers for using digital payments.

“This is consistent with the intent of TRAIN (Tax Reform for Acceleration and Inclusion Act) to exempt from income tax those whose annual taxable income does not exceed a certain threshold” , she said, adding that by exempting small digital payments from VAT, minimum wage earners will not be unduly burdened. The potential negative impacts on poor and marginalized sectors thatft to digital services will be minimized, she added.

Ms. Cayetano said she was interested in exploring the BSP’s proposals and defined her envisioned approach to taxation as “reverse discrimination”, which she hopes will encourage digital transactions through the effective remittance. 12% for people eligible for the exemption.

Mesina-Romero said the proposed waiver of service charges will help encourage the use of digital services by individuals, businesses and government institutions.

President of FinTech, Angelito M. Villanueva supported BSP’s position.

Netflix APAC indirect tax director Davy Chen said the company’s contribution was sought in the project.ftintroduce the bill in the House. Reportflix supports the legislation.

“Under the proposed rules of the VAT Bill, non-resident providers like Netflix will be able to register remotely for VAT only in the Philippines, and then collect and remit the tax in the Philippines through streamlined compliance mechanisms,” said he declared.

The streamlined supplier VAT registration regime benefits both non-resident businesses and the Philippine government, he added, as it would limit the compliance burden on non-resident VAT suppliers, while maximizing revenue. public and limiting costs.

However, calls have been made to clarify the process for foreign suppliers transacting through intermediaries. The bill should specify the entity responsible for remitting and collecting VAT in this situation to avoid confusion and double taxation, the committee was told.

Asia Cloud Computing Association secretariat Bensen Koh, who also represented the Asia Internet Coalition, also expressed support for the bill, saying it was in line with international best practices proposed by the Cooperation Organization and of economic development. and the International Monetary Fund.

Regarding payments to government agencies, which are subject to a 5% withholding tax and where non-resident service providers cannot claim input VAT, Mr. Koh asked for clarification.Ifcation on the tax treatment of these transactions.

“In terms of the grace period for this transition, we are proposing that 9 to 12 months should be allowed after the promulgation of implementing details, rules and regulations so that companies have time to ensure compliance,” said he declared.

Ms. Cayetano said while she doesn’t know how far the bill will go before Congress adjourns on June 3, the goal was to start discussions on the scope of the proposed law.

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