Salceda’s digital economy tax bill to raise P29.1-b new revenues to fill Covid-19 gap

House Ways and Means chair Joey Sarte Salceda (Albay, 2nd district) filed a tax bill to better capture the value created by the digital economy in the country’s tax system, and plug loopholes caused by ambiguities as to what kind of taxes digital services are liable to.

Salceda the bill aimed to simplify the tax collection procedures in the digital economy. It will make e-commerce platforms like Lazada as withholding agents for VAT on imports from its sellers, mostly overseas-based.

It wil require digital services providers like Facebook, Google and Netflix to be domiciled before offering their services so they become subject to value added tax (VAT) and corporate income tax (CIT).

The tax measure, HB 6765, titled An Act Establishing a Fiscal Regime for the Digital Economy, is estimated to yield as much as P29.1 billion annually in incremental revenues. It seeks to amend Sections 57, 105, 108, and 114 of the National Internal Revenue code.

“No new taxes here, we just want them to pay their fair share. Assuming you’re a company with a setup in the Philippines, and you do video-streaming or music-streaming services, you will definitely pay taxes. If you are a digital network operating in the country and get paid for the advertising services you provide, you are supposed to be subject to VAT,” he said.

“Google and Facebook, however, are not subject to VAT for their advertising incomes. ‘Ang laki po ng kinikita nila sa mga Pilipino, pero ni isang kusing ng VAT, wala. (They earn huge amounts from Filipinos but they pay not even a centavo for VAT,” he added.

Salceda noted that “internet marketplaces like Lazada and Shopee were growing very rapidly, due partly to COVID-19, but there may be some tax compliance issues among its partners too.

“We are unable to capture that tax resource because our current definitions do not include them as withholding agents. “Simply put, these are not new taxes. These are tax administration measures we hope will capture the value more fairly, (to help ensure business equality in the Philippines), especially today when local businesses are struggling due to Covid-19, and there are these companies that are making a killing because of isolation, but are not paying enough taxes,” Salceda said.

The lawmaker said HB 6765 aims to make “network orchestrators” like Grab, Angkas, and other similar services as “withholding agents” for income taxes, to ease the burden of their partners of having to pay their own taxes, while also encouraging tax compliance.

The bill will also clarifying that services rendered electronically in the course of trade or business are liable to Value-Added Tax.