Government eyes VAT on digital services

MANILA, Philippines — The government is bent on capturing the digital economy into the country’s value-added tax (VAT) base even as the international community has not yet agreed on the taxation of cross-border digital transactions, according to the Department of Finance (DOF).

In a text message to reporters, Finance Secretary Carlos Dominguez said the Philippines would need to wait for an international agreement on cross-border digital transactions before it can consider imposing tax on the revenues of digital service providers.

“We are aware that several tax administrations have started to impose digital services tax even when countries have yet to agree on how to reallocate income taxation rights on cross-border digital transactions,” Dominguez said.

“We are constantly monitoring developments on this matter. Once an international agreement is reached, we will immediately study and propose tax reforms to capture income tax on cross-border digital transactions,” he said.

Dominguez issued the statement after the US government announced that it would investigate countries which impose taxes on digital commerce, as they affect big American tech firms, such as Google, Apple, Facebook, Amazon and Netflix.

For now, Dominguez said the DOF and the Bureau of Internal Revenue (BIR) would focus on developing a tax regime that would allow the government to collect VAT on digital transactions, whether they are local or cross-border.

VAT refers to the tax on consumption, levied on the sale, barter, exchange or lease of goods or services in the Philippines and on importation of goods into the country.

“The DOF and the BIR are crafting regulations and designing a system to effectively collect VAT on digital transactions to help the government raise revenues,” he said.

“In this regard, while we are now focusing on administrative regulations, we still welcome Cong. (Joey) Salceda’s proposed bill on digital tax, specifically on his proposed amendments to our VAT law,” he said.

Salceda, who chairs the House ways and means committee, said earlier House Bill 6765 or the digital economy taxation bill seeks to impose taxes on streaming sites and other digital services, which have not been on the BIR’s list of taxpayers.

He said the bill is estimated to yield as much as P29.1 billion in additional revenues, which can be used to help the Philippines cope with the coronavirus crisis.

Dominguez said House Bill 6765 deals with how the government would be able to capture digital services into the VAT base, and how to absorb digital companies into the corporate income tax system.

The finance chief said the DOF would need to study the bill “very carefully” considering the transnational nature of most digital transactions.

He also said it is crucial for the government to set up a tax regime for the digital economy, especially with more transactions shifting online amid the coronavirus disease 2019 (COVID-19) pandemic.