Due to the enhanced community quarantine (ECQ), many people stayed confined in their homes, finding nothing but different ways on how they can entertain themselves. Some of these digital entertainment sources include Facebook, Netflix, Lazada (for online shopping), Shopee, and the like.
In addition to that, the government’s budget was also cut because of the fact that major operations were halted in the country. From the operations of businesses, to the transportation — everything came to a full stop.
Additional taxes on digital services
The chairman of the House of Representatives Committee on Ways and Means, Albay Representative Jose Maria Clemente S. Salceda, said that the Philippine national government should implement digital service taxes on digital advertisements.
These include internet-based subscriptions, as well as transactions made on electronic commerce (e-commerce) platforms like social media platforms and video streaming app Netflix which have not been on the Bureau of Internal Revenue’s (BIRs) list of taxpayers.
As per Salceda, his House Bill 6765, or more commonly known as the “Digital Economy Taxation Act”, seeks to implement a 12% value-added tax (VAT) on digitized services.
The goal of this act is to raise additional P29.1 billion on a yearly basis in incremental revenues to help the country cope with the COVID-19 pandemic as it responds to attaining new sources of funds and anticipate the increasing digitization of the country’s economy.
Furthermore, he said that there are no new taxes in this scene — and that they’re just looking for these services to pay their “fair-share.”
No new taxes here, we just want them to pay their fair share. Assuming you’re a company that sets up in the Philippines, and you do video-streaming or music-streaming services, you will definitely pay taxes. But companies like Netflix and Spotify don’t.”
Is it not fair?
One of the arguments that Salceda has is the fact that both Google and Facebook are not paying taxes, though they are advertising their services to the public.
When you’re a network in the country, advertising services paid to you would be subject to VAT (value added tax). But Google and Facebook are not subject to VAT for advertising. Ang laki po ng kinikita nila sa mga Pilipino, pero ni isang kusing ng VAT, wala. That’s obviously not fair.”
In Translation: They’re earning a great heap of profit from Filipinos but they’re not remitting even a cent of VAT. That is obviously not fair.
Apparently, our favorite streaming services such as Spotify and Netflix do not pay their business taxes even if they provide the continued service to the Filipino people. They get the subscription from Filipinos, but they are not remitting any kind of taxes.
It’s somehow one of the beauties of the digital industry — especially if they enter the foreign markets.
Capturing the value of the market through the additional taxes on digital services
The former NEDA chiefs said that the measure will be one way to quantify and capture the value that the digital economy has created.
It will capture the value created by the digital economy better in the country’s tax system, plugging loopholes due to ambiguities in what kind of taxes digital services are liable to.”
Furthermore, he explained that by inculcating these services into the country’s tax system, the country would have a better and a more reliable source of funds.
They have been raking in millions, if not billions, in behalf of the Filipinos, but not a single cent from the value added tax. Zero. Simply put, these are not new taxes. These are tax administration measures that we hope will capture the value more fairly.”
Adding the fact that the country is swarmed with a lot of threats because of the infamous pandemic, Salceda said that the additional taxes on digital services would just be right. Certain companies and businesses in the country such as Shopee and Lazada are growing, expanding, and prospering in a swift manner because of the pandemic.
However, he added, there “may be” issues of tax compliance and regulations with the partners of these companies and businesses, too.
Internet marketplaces like Lazada and Shopee are growing very rapidly due to COVID-19, but there may be issues of tax compliance among its partners, too. These companies are making a killing because of isolation, but are not paying enough taxes. And we are not able to capture that because our current definitions do not include them as withholding agents kahit nahawakan na nila iyung pera.”
In Translation: And we’re not able to capture that because our current definitions do not include them as withholding agents even if they already have the money.
All digital services at the moment are growing and are prospering; and it’s all due to the fact that the virus has taken over a major part of the lives of the Filipino people. Even after the virus spreads and threatens the lives of everyone from all around the globe, digital services would still be prospering.
Capturing these tax leakages
The Bureau of Internal Revenue (BIR) Deputy Commissioner for Operations Arnel S.D. Guballa said that it’s now the time for the Philippines to capture these tax leakages on all these digital transactions.
In a text message, he said that every time that goods and services are bought and purchased, it’s taxable; whether they’re manual or digital, they are subject to taxation.
Every sale of goods or services are taxable, whether manual or digital. On digital transactions, it’s about time to be high-tech to capture leakages.”
The Finance department submitted a draft proposal on a digital economy tax to lawmakers which resulted to create P15 billion in revenues in 2021, P16.6 billion in 2022 and P18.4 billion in 2023. With the trend, it’s clear that imposing additional taxes on digital services would be a completely separate way of gathering taxes for the Philippine government.
What these lawmakers are saying is true — that everything that is bought and purchased should have taxes. Unfortunately, we weren’t able to capture the thoughts and the opinions of the owners of these institutions.
Even if most of them are based from outside the country, it’s still going to be a heap of a payment for them if they pay taxes for their services. Overall, what do you think about the additional taxes on digital services that’s being imposed by Philippine lawmakers?
Most of the people think that it’s ridiculous because it’s subscription-based. The problem is, the money of the Filipino people are used and in that alone — taxes need to be incurred. The Digital Economy Taxation Act is just one of the fewest ways on how the government seeks to recover from their losses when the infamous COVID-19 hit.
Let’s wait for the final announcement on what the decisions on this will be! For now, let’s focus on keeping all of our feet planted on the ground while we keep all of ourselves safe!