Revisiting Digital Taxation in the Philippines

By McRey Banderlipe II | March 11, 2021, 3:30PM SGT

Photo by Aeron Oracion on unsplash

It has been almost a year since most countries began declaring lockdowns to prevent the spread of Covid-19. As people remained in their homes, there was a notable increase in the use of online services, prompting Congressman Joey Salceda of Albay’s 2^nd District to file House Bill No. 6765 (Digital Economy Taxation Act) that imposes value-added tax (VAT) on digital services such as those provided by Facebook, Google, Netflix, and Spotify as well as for digital retailers such as those on Lazada and Shopee platforms. Salceda said that there are no new taxes here since he wants these platforms to pay their fair share.

This measure aims to generate an estimated 29.1 billion pesos (approximately $573 million) annually to boost economic recovery from the current pandemic. A debt-driven stimulus program intends to save the Philippines from economic fallout following its implementation of one of the longest and strictest lockdowns. But, with a 25% plunge in tax collections by the Bureau of Internal Revenue, there is a need to explore other sources of tax revenues of which, digital taxes are one of them.

While there is wisdom in exploring other potential sources of revenue in today’s growing digital economy, a former research fellow at the Philippine Institute for Development Studies (PIDS) said that imposing such taxes are not that easy as digital transactions cut across local and international borders. In her discussion paper entitled “Emerging Tax Issues in the Digital Economy,” Dr. Janet Cuenca presented that plans to tax the Philippine digital economy faces constraints such as the absence of a standard regulatory framework for online platforms or the lack of adequate IT infrastructure.

It is therefore imperative to measure the size of the country’s digital economy. This action will aid in estimating the industry’s potential tax base and raise revenue. Reaching a common understanding and measuring the size of the digital economy is crucial in devising a tax regime for the provision of digital services.

The country’s digital infrastructure and regulatory barriers are also one of the bottlenecks that hinder the growth of the digital economy in the Philippines. They continue to inhibit businesses from exploring and investing in digital technology solutions. There is also a lack of standard permits issued across local government units (LGUs) thus making it difficult to deploy the needed infrastructure. This makes Internet availability, affordability, and reliability a big problem in the Philippines.

Moving forward, the Philippines needs to revisit this proposed regulation together with other proposed bills such as the Internet Transactions Act (House Bill No. 7805/Senate Bill No. 1591) and the Corporate Recovery and Tax Incentives for Enterprises (CREATE) Act (House Bill No. 4157 and Senate Bill No. 1357) to see if this proposed regulation is contextualized against the current and proposed tax rules and align with multilateral efforts to unify tax rules and address any overlaps with state measures and the possibility of double taxation considering the borderless nature of digital services transactions. Reconciling these contextualized provisions would also be beneficial in competitive tax rates, attract foreign direct investments, and create more job opportunities for Filipinos especially those affected by this pandemic.

References

1. https://pidswebs.pids.gov.ph/CDN/PUBLICATIONS/pidsdps2108.pdf
2. https://aicasia.org/wp-content/uploads/2020/07/Industry-Submission-on-the-Act-on-Fiscal-Regime-and-Taxation-of-the-Digital-Economy.pdf
3. https://www.congress.gov.ph/legisdocs/basic_18/HB06765.pdf
4. https://asia.nikkei.com/Economy/Philippines-eyes-tax-on-Netflix-to-boost-revenue-amid-pandemic
5. https://www.bworldonline.com/taxation-of-digital-firms-seen-hindered-by-policy-lack-of-infrastructure/
6. https://businessmirror.com.ph/2021/02/26/pids-tax-gaps-in-phl-digital-economy-may-require-infrastructure-expansion-to-resolve/