House panel OKs bill imposing VAT on digital transactions in PH

MANILA, Philippines — The substitute bill seeking to impose value-added tax (VAT) on digital transactions in the Philippines was approved Wednesday by the House committee on ways and means.

During an online hearing, the committee approved the still unnumbered bill which amends the National Internal Revenue Code of 1997 by including digital transactions among those covered by VAT.

With the amendment, “any person who, in the course of trade or business, sells barters exchanges, leases goods or properties—including those in digital or electronic in nature—renders services, including those rendered electronically, and any person who imports goods shall be subject to the VAT.”

AAMBIS-OWA Partylist Rep. Sharon Garin, who serves as the vice-chairperson of the ways and means committee, underscored that the target of the bill is not the small-time sellers online but rather the digital service providers from outside the country.

“Ang nangyayari kasi ngayon, ‘pag Netflix—o anumang company mag-subscribe ka dun—babayad ka dun sa foreign company pero walang tax, hindi subject to tax dito sa Pilipinas,” Garin said.

(What is happening now is, let’s say Netflix–or any other company that you can subscribe from–you will pay the foreign company but there is no tax, it is not subject to tax here in the Philippines.)

“Pero should Netflix be Filipino or any other company na nagsu-subcribe ka, nagbabayad sigurado ng value added tax at income tax kasi dito [naka-base]. So it’s unfair to those that are operating registered here,” she added.

(But if Netflix were a Filipino company, for sure it’s paying value-added tax and income tax since it’s based here. So it’s unfair for those that are operating and are registered here.)

Finance Assistant Secretary Daki Napao said that the government will earn P10 billion from the measure—of which P9 billion will come from foreign businesses and P1 billion will come from local companies.

According to the bill, the phrase “in the course of trade or business” is defined as the regular conduct or pursuit of an economic activity, including transactions by any person regardless of whether or not the person engaged therein is a non-stock, nonprofit private organization, or government entity.

As per the digital and electronic transactions, the bill states that nonresident digital service providers are liable for assessing, collecting, and remitting the VAT on the transactions that go through its platform.

The VAT is equivalent to 12 percent of gross receipts derived from the sale or exchange of services—including those done electronically.

“For this purpose, the digital service provider refers to a service provider of a digital service or goods 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 states.

What are considered as digital service providers?

According to the bill, the following are considered as digital service providers:

• A platform provider for promotion that uses the internet to deliver marketing messages to attract buyers;
• A host of online auctions conducted through the internet, where the seller sells the product or service to the person who bids the highest price;
• A supplier of digital services to a buyer in exchange for a regular subscription fee over the usage of the said product or service;
• A supplier of electronic and online services that can be delivered through information technology structure such as the internet, or
• A third party that acts as a conduit for goods or services offered by a supplier to a buyer and receives commission, therefore.