Senior Deputy Minority Leader Rep. Paul Daza has asked Congress to reconsider a proposed bill that would impose value-added tax (VAT) on digital transactions because doing so could have a “chilling effect” on local consumers.
Daza of Northern Samar 1st District cautioned the government that consumption-based tax such as VAT “is not always good for the economy.”
He expressed these sentiments during the plenary deliberations on the proposed House Bill 4122, or “An Act Imposing Value Added Tax (VAT) on Digital Transactions in the Philippines.”
He said that VAT is ultimately passed on to the consumers, burdening them further, at a time when there are still uncertainties post-pandemic.
“The intention is certainly good as we indeed need to impose VAT on big companies such as non-resident digital service providers (DSP), but we need to be protect SMEs and other small players,” Daza added.
He warned of the “chilling effect” on local players of imposing VAT on DSPs.
“When I was in the private sector, I supported online startups so I’m familiar with their challenges,” the lawmaker said.
“This might have a chilling effect; imposing more taxes on the local players just because we wanted to address the non-payment of taxes of outside players may do more harm than good,” it added.
He then suggested that Congress require the DSPs to instead properly register and establish residence in the Philippines before they can operate.
These companies can be directly taxed by corporate income tax laws instead of imposing VAT.
He said that all efforts must be made to avoid “unnecessarily burdening the small players.”
In August, the House Committee on Ways and Means passed a proposed legislation that would impose VAT on DSPs.
HB 372, or “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 Albay 2nd District Rep. Joey Salceda.
READ: House panel OKs bill imposing VAT on foreign-based digital services
Nueva Ecija 3rd District Rep. Rosanna Vergara, one of the authors of the proposed legislation, aimed collect VAT from DSPs and local digital service providers, which include content creators that earn more than P3 million annually.
The measure can contribute up to P12 billion in additional government revenues per year.
Vergara argued that VAT was the “simplest way” to approach the bill’s implementing rules and regulations, and that the direct taxation on the foreign companies “might to retaliatory measures” in which the home countries of the non-resident DSPs may impose taxes on Philippine exports.
Daza appealed to his colleagues to reconsider the bill by increasing the annual income threshold to P5 million from P3 million.
A low threshold might discourage potential entrepreneurs from engaging in digital businesses or disincentivize current enterprises from going further into digitalization due to the burden of VAT.
“It’s also important that we have a solid plan for the revenues, which could be generated from this. For example, are we using such revenues to help finance SMEs or startups?” the lawmaker asked.
“As Milton Friedman American economist and Nobel Prize awardee for Economic Science in 1976 warned, “In the long run, government will spend whatever the tax system will raise, plus as much more as it can get away with,” he shared.