The Bicameral Conference Committee approved a 12 percent Value Added Tax on non-resident digital service providers on Thursday.
The approval came as the committee achieved consensus on two remaining issues: the withholding tax on percentage taxpayers as proposed by the Department of Finance (DOF), and the earmarking of funds for the local creatives sector.
“The bicam quickly agreed on two remaining items. On withholding taxes for percentage taxpayers, we agreed with the DOF proposal, which will allow the Secretary of Finance to set withholding tax rates for those who are not VAT-covered,” Rep Joey Sarte Salceda of Albay, chair of the House committee on ways and means, announced.
“We obtained assurances that small taxpayers will not be subject to excessive audits or complicated compliance,” he added.
Salceda filed the first version of the VAT on digital service providers in 2020, at the height of the COVID-19 pandemic.
“But during the pandemic, at the peak of the displacement of traditional goods by digital services, we allowed foreign digital service providers unfettered and untaxed access to the Philippine market. While resident content producers were subject to VAT and income taxes, foreign service providers were not.”
Salceda said that protections for small businesses, such as the Barangay Micro Business Enterprise Law, and the Ease of Paying Taxes with respect to risk-based audits will still apply.
“What the DOF proposal simply does is instead of paying their percentage taxes at the end of the year, the taxes will be withheld by the e-commerce site,” Salceda stressed.
Taxpayers subject to percentage tax are those who fall below the P3 million VAT threshold set under the TRAIN law.
Salceda added the bicam also agreed to earmark 5 percent of incremental revenues, or around P900 million, to the creatives sector.
“We also negotiated with the Department of Finance to keep the earmarking provision in the House version. My counterparts in the Senate also agreed to the earmarking,” Salceda said.
In pushing for the earmarking provision, Salceda said that “Taxes on imported goods help level the playing field. And taxes on imported goods are typically earmarked for domestic support.”
This, Salceda said, created an unfair situation where local creators are taxed while imported content is not.
“This unfairness to the domestic sector for at least four years is why the House contingent believes that we owe the resident creatives sector some measure of compensation and support.”
In sum, the measure is expected to generate as much as P18 billion on its first year.
“It will also close a VAT loophole, which will improve VAT collections as a whole.”