FINANCE Secretary Carlos G. Dominguez III said the government is now studying how to plug revenue leakages and impose tax on video streaming services and e-commerce platforms, such as Lazada.
This, as the country looks for ways to boost its limited source of funds as the government spends more in its fight against the Covid-19 pandemic.
While Dominguez said they have yet to determine the total amount of transactions involved in these services, the country’s finance chief said the study is aimed at boosting the government’s tax collections.
“Right now, we don’t have the picture of the total amount of transactions. What we are trying to figure out is how to implement a tax collection program so right now, our team from the BIR [Bureau of Internal Revenue] and DOF [Department of Finance] is working very hard to determine the way to tax transactions that are supposed to be taxed but are escaping taxation because they are on the Internet,” Dominguez told senators on Wednesday during the Senate hearing on the Covid-19 situation in the country.
“For instance, the issue on VAT [value-added tax], if you buy a floor polisher from the store, you pay a VAT but if you buy from Lazada, there is no VAT charge, so we are figuring out how to do this. Also on Internet streaming, how are we going to identify the transactions and the amounts involved,” he added. Dominguez was replying to a question by Sen. Ramon “Bong” Revilla.
Revilla bill
Revilla earlier filed PS Resolution 410, urging the Senate Committee on Ways and Means and the appropriate Senate Committees to conduct an inquiry, in aid of legislation, into the possibility of collecting taxes from multinational online streaming services and the digital economy in general.
The senator said in a statement that the revenues raised from such taxes could be used to finance the national economic recovery plan, especially the rehabilitation of severely affected industries, and the construction of “Schools for the Future” which are equipped with digital technologies and laboratories.
According to the same statement, the Philippine digital economy was expected to grow by more than 250 percent from $7 billion to $25 billion by 2025, equivalent to 5.3 percent of the country’s gross domestic product (GDP) even before the Covid-19 pandemic.
Revilla said that while local online businesses have already been covered by Philippine tax laws, multinational corporations with more sophisticated technological capabilities, less physical presence yet wider reach may have to be properly taxed given the outdated provisions and leakages in existing tax measures.
Digital economy VAT
Based on the presentation of Socioeconomic Planning Secretary Karl Kendrick Chua to the House of Representatives earlier obtained by the BusinessMirror, the economic team has identified digital economy VAT as one of the options to raise revenues.
Under the digital economy proposal, all nonresidents shall be VAT-registered and that e-commerce platforms, such as Google and Amazon are responsible for withholding VAT from clients.
The government expects this move to yield P50 billion in revenues in three years. Broken down, P15 billion is seen to be raised in 2021, P16.6 billion in 2022 and P18.4 billion in 2023. Sought for comment, BIR Deputy Commissioner Arnel Guballa told the BusinessMirror that it is “high time to tax the digital economy.”
“We have to adopt with new normal. Online selling will flourish for health reasons [physical distancing],” Guballa said.
Image credits: AP
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