The House of Representatives launched Wednesday the plenary debates on the bill proposing value added tax on digital transactions, with the principal author insisting that the measure does not intend to “impoverish small online sellers” but will optimize taxing opportunity for government.

Albay Rep. Joey Sarte-Salceda, chairman of the House Committee on Ways and Means, sponsored on the floor House Bill 7425 which will subject trade, business and services done electronically or digital to value added tax (VAT).

The bill which will amend the National Internal Revenue Code of 1997 consolidates legislative proposals filed by Deputy Speaker  and Batangas Rep. Vilma Santos-Recto; Deputy Speaker and Ilocos Sur Rep. DV Savellano; Reps. Sharon Garin (AAMBIS OWA Partylist) and Salceda.

The bill defines digital service provider (DSP) as a service provider of a digital service or commodity to a buyer, through operating an online platform for purposes of buying and selling of goods or services.

A DSP can be a third party, such as a seller of goods and services, who through information-based technology or the internet sells multiple products for its own account.  It may also be a platform provider for promotion that uses the internet to deliver marketing messages or attract buyers.

The bill also states that a DSP can be a host of online auctions; a supplier of digital services to a buyer in exchange for a regular subscription fee over the usage of the product or service and a supplier of goods or electronic and online services.

For non-resident DSPs, the VAT on transactions will be collected and remitted through its platform.  It also precludes them from claiming creditable input tax.

The bill also imposes a five percent VAT to registered non-resident DSPs providing services to the government.  But a 12 percent VAT will be imposed outside such services.

In sponsoring the bill, Salceda stressed that there are “safety nets in the Tax Code and other laws that exempt those earning P3 million and below from paying VAT.

 “I also make the guarantee that we will not tax online barter trades. We are after big businesses who are unfairly raking it in,” he said, apparently anticipating strong opposition to the measure.

 According to him, HB 7425 “seeks to level the playing field between traditional and digital businesses.”

“While the vital role of information and communications technology in nation building has been recognized as early as 2000, with the passage of the Electronic Commerce Act, the tax on online transactions must have the force of law for it to be optimized,” he pointed out.

Salceda warned that the government “will lose out” if it fails to tap this new source of revenue which can bring about P31 billion on its first year of implementation.

“Mr. Speaker, your Honors, our internet economy annually grows at 20% to 30%. Estimated at USD7 billion in 2019, the internet economy makes up 2.1% of the country’s current GDP, and is expected to hit 5.3% of GDP, or USD25 billion, by 2025,” said Salceda.

“This will only keep on growing, and the economy will become increasingly more digital. Just like the 77 countries, let us set the ground rules clearly and this early, so that we will not have to make more painful and difficult choices in the future," the administration lawmaker said.

He added: “We offer this VAT on online transactions as part of the solution in our country’s efforts to recover from the adverse impact of COVID-19.”