BSP backs 12% tax on digital transactions

MANILA, Philippines — The Bangko Sentral ng Pilipinas (BSP) supports a proposal to impose a 12 percent value-added tax (VAT) on all digital transactions.

During the European-Philippine Business Summit, BSP Governor Benjamin Diokno said the desire to tax digital transactions is universal for both developed and emerging economies like the Philippines.

“So I think there will be such a move and I think it’s fair. To me it’s a good tax,” he said.

Diokno, who is a professor emeritus at the University of the Philippines in Diliman, said taxing transactions is better than taxing income.

“I used to lecture on public economics and I say it’s better to tax individuals on the basis of what they take away from society than what they contribute to society. What you contribute to society is your income, right, but what to take away is your consumption. So it’s better to tax you on the basis of your consumption,” the BSP chief said.

Last Sept. 21, the House of Representatives approved on final reading House Bill 7425 imposing a 12 percent VAT on digital transactions to generate more revenues.

The bill, amending the National Internal Revenue Code (NIRC) of 1997, intends to impose VAT on electronic or online sale of services including online advertisement services and provision for digital advertising space, digital services in exchange for a regular subscription fee, as well as supply of other electronic and online services that can be delivered through the internet.

Under the bill, non-resident digital service providers are required to register for VAT if gross sales for the past year from the implementation of the proposed law have exceeded P3 million. Registered non-resident DSPs providing services to the government would be charged a lower VAT of five percent.

Based on the initial estimate from the Department of Finance (DOF), the proposed law could generate P10.7 billion in additional revenues every year.

In a report, the International Monetary Fund (IMF) said that charging VAT on remotely delivered digital services and some goods to customers could directly increase the overall VAT revenue of the Philippines, Bangladesh, India, Indonesia and Vietnam by 0.04 to 0.11 percent of gross domestic product (GDP).

The IMF’s Asia-Pacific and Fiscal Affairs Departments said in the 74-page report that the projection was based on a 100 percent digital media content transactions, 10 percent of all e-commerce transactions, five percent of digital advertising as well as 15 percent of e-services, mobility and travel services.

“This initial revenue gain can become larger through indirect effects,” it said.

It pointed out governments could realize potential additional benefits from including digital services and electronic commerce in the VAT net by using the large amount of information held by digital platforms to enhance compliance with VAT, other taxes, and other taxpayers and using the platforms as tax collection agents.