The House Committee Ways and Means on Wednesday, Aug. 17, approved a proposed measure that would impose value-added tax (VAT) on non-resident digital service providers (DSPs), such as Amazon and Google.
Albay 2nd District Rep. Joey Salceda, committee chairman, said during Wednesday's hearing that the imposition of VAT on non-resident DSPs is more about leveling the playing field.
“We are trying to cure a disadvantage by local producers,” the lawmaker, who is also the author of House Bill (HB) No. 372, stressed.
The bill, also known as “An Act Imposing Value-Added Tax on Digital Transactions in the Philippines, Amending for the Purpose Sections 105, 108, 109, 110, 113, 114, and 236 and Adding a New Section 105-A of the National Internal Revenue Code of 1997, as Amended,” was filed by Salceda on June 30, 2022.
It followed HB 7425, which was approved on third and final reading in the 18th Congress under the authorship and sponsorship of Salceda and former AAMBIS-OWA Rep. Sharon Garin.
“This bill clarifies that digital services such as digital advertising, subscription-based services, and other online services that can be delivered through the internet as VAT-able. The measure also aims to strengthen tax compliance through simplified invoicing and registration requirements for VAT-registered nonresident DSPs,” the bill’s explanatory note said.
During the hearing, Salceda said imposing VAT on non-resident DSPs has been done “across the world” except in the Philippines.
He noted the VAT on non-resident digital service providers is expected to raise P9 billion in government revenues.
Department of Finance (DOF) Undersecretary Antonette Tionko, a resource speaker during the hearing, explained that the new legislation would correct the lack of a mechanism in the current Philippine laws to collect taxes from non-resident DSPs.
“That’s the reason why there is no new tax. Its tax should have been paid in the first place but there wasn’t any mechanism to collect it so that’s the reason why we are supportive of this bill so that there would be a mechanism for the BIR (Bureau of Internal Revenue) to collect the VAT that should have been in the first place,” she said.
The Salceda bill aims to introduce a new item—Section 105-A—to the National Internal Revenue Code of 1997 that will expand the “persons liable in digital or electronic transactions” to include “the non-resident digital service provider” as being liable “for assessing, collecting, and remitting the value-added tax on the transactions that go through its platform".
“For this purpose, the term ‘digital service provider’ refers to a service provider of a digital service or good 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 stated.
Specifically, the bill would impose VAT on “the supply by any resident or non-resident of digital services in exchange for a regular subscription fee over the usage of the said product or service".
It will also require VAT payments from online advertisement services and the supply of electronic and online services that can be delivered through the Internet.
VAT exemptions
During the hearing, Salceda reiterated the importance of exempting certain transactions from VAT imposition.
One of them, as raised by Gabriela Party-list Rep. Arlene Brosas, is the proposed amendment to the bill exempting scholarly services being used by various learning institutions.
The lawmaker also mentioned the exemptions to be granted to state universities and colleges (SUCs) and the University of the Philippines (UP).
However, Salceda said he would not agree to exempt the “big corporations".
Under the bill, education services, including online courses and webinars rendered by private educational institutions, shall be exempted from VAT imposition.