Philippines lagging other jurisdictions in taxing digital transactions

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By John Victor D. Ordoñez, Reporter

A 12% VALUE-ADDED TAX (VAT) on digital transactions is long overdue, with the Philippines lagging many countries in implementing one, a tax professional said.

“We are actually late in the game in taxing foreign digital service providers,” Eleanor L. Roque, tax principal of P&A Grant Thornton, said in a Viber message.

“If the government does not tax digital transactions, it is ignoring a good source of taxes.”

Senate Bill No. 2528, which seeks to require foreign online streaming platforms with subscribers in the Philippines to pay 12% VAT, is set for floor debate at the chamber.

Under the measure, nonresident electronic marketplaces will be required to withhold and remit VAT on transactions that are coursed through their platforms, if the buyer is in the Philippines.

The House of Representatives approved a similar measure in November 2022.

At least 15 countries, including France, Italy, Spain and the UK have laws on digital service taxes, according to PwC.

Calixto V. Chikiamco, Foundation for Economic Freedom president, said digital taxes would “level the playing field” between online businesses and conventional businesses.

The government should earn hefty revenue as many transactions are now occurring in the digital space on nonresident platforms.

Leonardo A. Lanzona, who teaches economics at the Ateneo de Manila, said such a measure would make these digital services more expensive for consumers.

“The large online companies will naturally transfer the taxes to the consumers, thus resulting in a greater wedge between buying and selling prices, which in turn raises prices and reduces the amount of online transactions,” he said via Messenger chat.

Last month, the Asian Development Bank said the government should consider expanding taxes for digital services and enhance revenue collection efforts.

The Department of Finance has said it “seeks to level the playing field between local and foreign digital service providers by clarifying that services provided by the latter in the country are subject to VAT.”

It said the measure is expected to bring in P83.3 billion in revenue from 2024 to 2028.

“This measure should obviously increase revenue, but it (Senate) should first figure out how to enforce the measure on nonresident personalities,” Terry L. Ridon,  a public investment analyst and convenor of think tank InfraWatch PH, said via chat.