House Ways and Means Chair Joey Sarte Salceda (Albay, 2nd district) has filed a tax bill aimed to better capture the value created by the digital economy in the country’s tax system, and plug loopholes caused by ambiguities as to what kind of taxes digital services are liable to.
The bill is clear and simple. 1). It will make e-commerce platforms like Lazada as withholding agents for VAT on imports from its sellers, mostly overseas-based; 2) it wiil require digital services providers like Facebook, Google and Netflix to be domiciled before offering their services so they become subject to value added tax (VAT) and corporate income tax (CIT). The tax measure, HB 6765, titled An Act Establishing a Fiscal Regime for the Digital Economy,is estimated to yield as much as P29.1 billion annually in incremental revenues. It seeks to amend Sections 57, 105, 108, and 114 of the National Internal Revenue code.
“No new taxes here, we just want them to pay their fair share. Assuming you’re a company with a set up in the Philippines, and you do video-streaming or music-streaming services, you will definitely pay taxes. If you are a digital network operating in the country and get paid for the advertising services you provide, you are supposed to be subject to VAT. Google and Facebook, however, are not subject to VAT for their advertising incomes. ‘Ang laki po ng kinikita nila sa mga Pilipino, pero ni isang kusing ng VAT, wala. (They earn huge amounts from Filipinos but they pay not even a centavo for VAT,” he added.
Salceda noted that “internet marketplaces like Lazada and Shopee are growing very rapidly, due partly to COVID-19, but there may be some tax compliance issues among its partners too, and we are unable to capture that tax resource because our current definitions do not include them as withholding agents ‘kahit nahahawakan na nila yung pera’ (even if they actually handle the money).”
“Simply put, these are not new taxes. These are tax administration measures we hope will capture the value more fairly, ‘para pantay naman sa lahat ng negosyo sa Pilipinas’ (to help ensure business equality in the Philippines), especially today when local businesses are struggling due to Covid-19, and there are these companies that are making a killing because of isolation, but are not paying enough taxes,” Salceda added.
The lawmaker said HB 6765 includes the following key features: 1) Making “network orchestrators” like Grab, Angkas, and other similar services as “withholding agents” for income taxes, to ease their partners of the burden of having to pay their own taxes, while also encouraging tax compliance; 2) Clarifying that services rendered electronically in the course of trade or business are liable to Value-Added Tax (VAT).
3. Redefining and clarifying that digital advertising by internet giants like Google and Facebook and subscription-based services such as those by Netflix and Spotify, are subject to VAT; 4) Making network orchestrators for lease services such as AirBnB, and e-commerce platforms like Lazada and Shopee as withholding agents for VAT; and 5) Requiring those who render digital services to have a resident agent or a representative office in the Philippines, to address the issue of companies having significant presence in the country but without having a physical establishment in the Philippines and not being liable for tax and regulatory compliance.
Salceda said presently, there are many runaway services or companies which earn huge revenues from Filipinos but pay no taxes.” Moreover, when you have complaints against them, you cannot even access them because they have no offices in the country, hence they can easily go scot-free,” he pointed out.
He also assured regular social media users who do not afvertise in e-platforms they will not be affected by the measure. “If anything, these social media platforms need users – you — so they could earn via digital advertising, the same way TV networks need viewers so they could get advertising contracts. So, the usual social media channels will definitely remain free. The whole idea that somehow, this bill will make social media networks charge users who don’t advertise, is bad reading of the proposal.” he explained.
“This strategy is now in use in India and Indonesia,and firms involved are doing well. We need to find new revenue sources every time we propose new spending. Thus, I have a POGO tax proposal, a road users’ tax proposal that will not erode economic growth and will not tax the poor at all. These proposals will yield around P65-70 billion a year if the BIR and other collection agencies could further improve their collection efficiency. Add to this the P30-billion potemtial yield of HB 6765 and your House Ways and Means Committee is already solving a P100-billion share of our revenue problem,” Salceda concluded.