Pia Cayetano files bill imposing VAT on digital transactions

Amid the country's shift to e-commerce and digitalization, Senator Pia Cayetano has filed a bill seeking to impose value added tax (VAT) on online transactions.

In filing Senate Bill 250, Cayetano cited e-Conomy Southeast Asia Report which showed that the Philippines is now the fastest growing internet economy in the region driven by e-commerce and food delivery services.

The lawmaker said the country has seen 12 million new digital consumers since the start of the pandemic in 2020. Of the said number, 63% are from non-metro areas and 99% of them intend to continue using these services even beyond the COVID-19 pandemic.

"As the country moves towards more digitalization, so too must our tax regime. The government needs to catch up with the trends and constantly expend an all-out effort to strengthen its revenue-generating capability to aid our country's economic recovery from the adverse impacts of COVID-19," she said in her explanatory note.

Cayetano said the bill which she based on the proposal submitted by the House of Representatives in the 18th Congress, seeks to level the playing field between the traditional and digital businesses by clarifying the imposition and collection of VAT from digital service providers.

These are required to help the government monitor and collect VAT from persons engaging businesses on their digital platforms, she added.

The lawmaker also clarified that SB 250 does not impose new taxes but "merely strengthens and streamlines" the Bureau of Internal Revenue's authority to collect VAT on digital transactions by providing measures on how resident and non-resident digital service providers should comply with the country's VAT requirements as provided by the National Internal Revenue Code (NIRC).

"With a tax base that will widen further in the coming years, this bill can sustainably augment the revenues to support the government in its path towards economic recovery and growth," she said.

Cayetano's measure seeks to amend Sections 105, 108, 109, 113, 114 and 236 of the NIRC.

Section 2 of SB 250 amends Section 105-A of the NIRC and introduces a provision stating that nonresident digital service providers will be liable for assessing, collecting and remitting VAT on transactions that go through its platforms.

SB 250 also defines the term digital service as any service that is delivered or subscribed over the internet or other electronic network.

Digital services cover online licensing of software, website filters and firewalls, mobile applications, video games and online games, webcast and webinars, provision of digital contents such as music files, images, text, and information, provision of advertisement platform, search engine services, social networks, database and hosting, online data warehousing, internet-based telecommunication, online training, online courses, online newspapers and journal subscription, payment processing services, among others.

The bill, however, exempts online courses and webinars as well as books and any newspaper, magazine sold electronically or online from the imposition of VAT.

The proposed measure also provides that any non-resident digital service provider who, in the course of trade or business, engages in the sale or exchange of digital services shall be liable to register for VAT if the gross sales or receipts for the past 12 months before the date of filing of VAT return have exceeded P3 million or there are reasonable grounds to believe that the gross sales or receipts of the digital service business for the next 12 months from the date of filing of VAT return, will exceed the same amount.

The BIR will be tasked to establish a simplified automated registration system for nonresident digital service providers subject to the rules and regulations prescribed by the Finance secretary upon the recommendation of the BIR commissioner.

In the 18th Congress, the House ways and means panel has approved a bill seeking to impose a 12% VAT on some foreign and local companies providing goods and services via digital and electronic platforms.—LDF, GMA News