House Ways and Means Chair Joey Sarte Salceda (Albay, 2nd district) has filed a tax bill that will capture the value created by the digital economy better in the country’s tax system, plugging loopholes due to ambiguities in what kind of taxes digital services are liable to. The tax administration measures under House Bill No. 6765 are estimated to yield as much as P29.1 billion annually in incremental revenues.
“No new taxes here, we just want them to pay their fair share. Assuming you’re a company that sets up in the Philippines, and you do video-streaming or music-streaming services, you will definitely pay taxes. But companies like Netflix and Spofify don’t. That’s obviously not fair. When you’re a network in the Philippines, advertising services paid to you will be subject to VAT. But Google and Facebook are not subject to VAT for advertising. Ang laki po ng kinikita nila sa mga Pilipino, pero ni isang kusing ng VAT, wala.” Salceda said.
“Internet marketplaces like Lazada and Shopee are growing very rapidly due to COVID-19, but there may be issues of tax compliance among its partners, too. And we are not able to capture that because our current definitions do not include them as withholding agents kahit nahawakan na nila ‘yung pera.” Salceda said.
“Simply put, these are not new taxes. These are tax administration measures that we hope will capture the value more fairly, para pantay naman sa lahat ng negosyo sa Pilipinas. Especially 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.”
The key features of the bill are:
1. Making “network orchestrators” like Grab, Angkas, and other similar services withholding agents for income taxes, to ease their partners of the burden of having to pay their own taxes, while also encouraging tax compliance.
2. Clarifying that services rendered electronically in the course of trade or business are liable to Value-Added Tax (VAT).
3. Clarifying that digital advertising by internet giants such as Google and Facebook and subscription-based services such as those of Netflix and Spotify, are subject to VAT.
4. Making network orchestrators for lease services such as AirBnB, and electronic commerce platforms such as Lazada and Shopee withholding agents for VAT
5. Requiring those who render digital services to do so through a resident agent or a representative office in the Philippines, to address the issue of companies having significant presence in the country without having a physical establishment in the Philippines not being liable for tax and regulatory purposes.
“Consumer protection din po ito. Sa ngayon, runaway services po ang karamihan ditto. Kapag may reklamo ka, paano mo sisingilin, wala naming opisina sa bansa, kaya wala naman kaming pwede panagutin.”
Salceda also added that his tax proposal will not affect social media users who do not advertise on these platforms.
“Kung regular user ka lang naman, hindi ka naman apektado. If anything, these social media platforms need you, the user, to keep using, so that they could earn from digital advertising, the same way TV networks need viewers so they could get advertising contracts. So, the usual social media channels will definitely remain free. The whole idea that somehow, this bill will make social media networks charge users who don’t advertise, that’s a bad reading of the proposal.” Salceda explained.
“Ginagawa na po ito sa India at Indonesia. And these companies are still doing well in those countries,” Salceda said.
“The economic managers said we will need to find new revenue sources every time we propose new spending. I have a POGO tax proposal, a road users’ tax proposal that will not erode economic growth and will not tax the poor at all. I estimate that those proposals will yield around P65-70 billion a year if BIR and the other collection agencies could make good with collection efficiency. This is about another P30 billion. The House Ways and Means Committee is already solving a P100-billion share of the problem of revenues.” Salceda concluded.