The Department of Finance (DOF) wants large foreign digital service providers (DSP) to remit to the Bureau of Internal Revenue (BIR) the value-added tax (VAT) in transactions that go through their platforms.
Finance Director Euvimil Nina R. Asuncion said the DOF supports House Bill (HB) No. 7425 that seeks to impose a 12 percent VAT to digital sale of services such as online advertisements, subscription services, and supply of other electronic and online services.
But while HB 7425 covers both foreign and domestic DSPs, the proposed measure is mainly focused on the VAT liability regime of non-residents or foreign-based entities, the DOF official said.
Under the proposed tax regime, non-resident DSPs are liable for assessing, collecting, and remitting the VAT on the transactions that go through their platforms.
Asuncion, however, assured that the government will implement a simplified online registration foreign DSPs for VAT purposes, similar to the registration procedures in other jurisdictions.
“The registration of non-resident DSPs with the BIR under the simplified automated registration system will be for VAT purposes only. Their registration under this system will not be for intents and purposes considered as having established tax residence in the Philippines,” Asuncion said.
According to Asuncion, the objective of the bill is to reduce the costs and risks for tax authorities of administering, policing and collecting VAT on the ever increasing volume of online sales.
Initially, the plan is to draw on the relatively limited number of platforms that facilitate large shares of online sales and that are capable of complying with the VAT obligations in respect of these sales, she said.
“These administrative costs and risks are likely to be significantly lower than in a scenario where taxes would need to be collected on individual sales from the large number (potentially thousand if not millions) of underlying suppliers,” Asuncion said.
“At the same time, such a regime could potentially reduce compliance costs for suppliers who are likely to face multi-jurisdictional obligations,” she added.
According to the World Bank’s Philippine Digital Report published in 2020, there were 73 million internet users in the Philippines. Even before the pandemic, Filipinos spend an average of four hours a day using the internet, which is the highest for users globally.
When the Philippines was placed under the Enhanced Community Quarantine (ECQ) for almost three months, the average number of hours Filipinos spent on the internet rose to 5.2 hours a day.
In another report commissioned by Google related to the digital economy in the Philippines, it was forecasted that the total e-commerce market in the Philippines for 2020 will total $1.09 billion.
An updated figure for 2021 showed that the Philippines’ internet economy is now worth over $12 billion.
The same report also noted that there were around 12 million new digital consumers during the pandemic until the first quarter of 2021.
The increase can be attributed to the shifting shopping habits of consumers. Filipinos are now buying and selling on online platforms rather than visit traditional brick and mortar stores.