The House Committee on Ways and Means approved on Wednesday a measure imposing a 12 percent value-added tax (VAT) on digital transactions in the country aimed at raising P10 billion new revenues for the government’s fight against COVID-19.
After less than one hour of virtual deliberations, the House panel, chaired by Albay 2nd District Rep. Joey Salceda, passed the unnumbered substitute bill imposing tax on the digital economy. The substitute bill, which is a consolidation of three measures and a resolution, seeks to amend seven sections and add a new section of the National Internal Revenue Code of 1997, as amended.
“The Committee hereby approves the Unnumbered Substitute Bill on HBs No 6765, 6944, and 4531, integrating the concerns under HR No. 685. The Secretariat is hereby directed to file the appropriate Committee Report,” Salceda, one of the principal authors of the bill, said.
The Salceda panel approved the substitute bill presented by AAMBIS-OWA partylist Rep. Sharon Garin, vice chairperson of the House panel and one of the main proponents of the measure.
Garin, chairman of the technical working group (TWG) that consolidated the bills and resolution, said the substitute measure covers the digital advertising services, such as those on search engines and social media platforms; subscription-based services, including music and video streaming subscriptions; and services rendered electronically; and transactions made through an information technology infrastructure, such as the internet.
She clarified that the bill is not targeting the micro, small, and medium enterprises (MSMEs) and small-time online sellers, but the “service providers from outside” which include Netflix, Spotify, Facebook, Google, and other global internet companies that conduct business in the country.
“They are gaining profit from us from our constituents and hindi sila nagbabayad ng tax (they are not paying the tax). While, kung dito ka nagbebenta (if you are selling here), nagbabayad ka ng tax (you are paying the tax). The objective of the bill is to level the playing field. If you are making profit from here selling to Filipinos, you have to pay taxes here,” Garin said.
Department of Finance (DOF) Assistant Secretary Daki Napao said the measure will generate P10.66 billion new revenues for the government—P9.31 billion from the foreign electronic transactions and P1.36 billion fromlocal transactions.
The substitute bill provides that any person who, in the course of trade or business, sells, barters, exchanges, leases goods or properties, including those digital or electronic in nature, renders services, including those rendered electronically, and any person who imports goods shall be subject to the VAT.
However, it exempts from VAT the sale and importation of books, newspapers, magazines, or bulletins which are sold electronically.
The bill provides that non-resident digital service providers are liable for assessing, collecting, and remitting the VAT on the transaction that goes through its platform.
Under the measure, the digital service provider refers to a service provider of a digital service or goods to a buyer through operating an online platform for purposes of buying and selling of goods or services or by making transactions for the provision of digital services on behalf of any person.
The bill specifically identifies the digital service provider as the following:
- a third party that acts as conduit for goods or services offered by a supplier to a buyer and receives commission therefor, which may also be considered as a merchandiser or retailer when buyers purchase goods or services from an intermediary service provider who controls such collection of buyers’ payment, and therefore receives commission from the merchant or retailer or when the intermediary markets multiply products for its own account;
- a platform provider for promotion that uses the internet to deliver marketing messages to attract buyers;
- a host of online auctions conducted through the internet, where the seller sells the product or service to the person who bids the highest price;
- a supplier of digital services to a buyer in exchange for a regular subscription fee over the usage of the said product or service; and
- a supplier of electronic and online services that can be delivered through an information technology infrastructure such as the internet. While, the buyer refers to any person who resides in the Philippines and who acquires taxable digital services in the country from a digital service provider either for personal consumption or for use for trade or business.
The bill defines a digital service as any service that is delivered or subscribed over the internet or other electronic network and which cannot be obtained without the use of information technology and where the delivery of the service may be automated.
Digital services shall include online licensing of software, updates, and add-ons, website filters and firewalls; mobile applications, video games, and online games; webcast and webinars; provision of digital content such as music, files, images, text and information; advertisement platform such as provision of online advertising space on intangible media platform; online platform such as electronic marketplaces or networks for the sale, display, and comparison of prices of trade products for services; search engine services; social networks; database and hosting such as website hosting, online data warehousing, file sharing and Cloud storage services; internet-based telecommunication; online training such as provision of distance teaching e-learning, online courses and webinars, online newspapers, and journal subscription; and payment processing services.
The bill provides that creditable input tax shall be claimed by non resident digital service providers.
According to the bill, a VAT-registered non-resident digital service provider may issue electronic invoice or receipt subject to the rules and regulations to be prescribed by the Secretary of Finance upon the recommendation of the Bureau of Internal Revenue (BIR) Commissioner.
Unless they are duly-registered with the BIR, payments to nonresidents for services rendered in the county shall be subject to 12 percent withholding tax at the time of payment.
The bill provides that any nonresident digital service provider who, in the course of trade or business, engages in the sale or exchange of digital services shall be liable to register for value-added tax if:
- his gross sales or receipts for the last past 12 months, other than those that are exempt under Section 109 (A) to (BB), have exceeded P3 million; or
- there are reasonable grounds to believe that his gross sales or receipts for the next 12 months, other than those that are exempt under Section 109 (A) to (BB), will exceed P3 million.
The measure mandates the BIR to establish a simplified automated registration system for non-resident digital service providers subject to the rules and regulations to be prescribed by the Secretary of Finance upon the recommendation of the Commissioner of Internal Revenue.
The Department of Finance (DOF), upon the recommendation of the BIR, and in coordination with the Department of Information and Communication Technology (DICT), shall promulgate the implementing rules and regulations not later than 90 days after the approval of the proposed Act.