To generate revenues from new sources to fund the country’s pandemic recovery efforts, the House of Representatives has endorsed for Senate approval a bill imposing value-added tax (VAT) on digital transactions in the Philippines.
Voting 167 affirmative, 6 negative and 1 abstention, lawmakers approved on third and final reading House Bill 7425 to level the playing field between traditional and digital businesses by clarifying the imposition of VAT on digital service providers.
The bill clarifies the imposition of VAT on electronic or online sale of services such as: online advertisement services and provision for digital advertising space; digital services in exchange for a regular subscription fee; and supply of other electronic and online services that can be delivered through the internet.
The bill also provides a clear definition of a liable digital service provider (DSP) and requires non-resident DSPs to collect and remit the VAT on the transactions that pass through its platform. Non-resident DSPs will also be required to register for VAT if gross sales or receipts for the past year have exceeded P3 million.
The bill exempts books and other printed materials that are sold electronically or online from VAT.
The measure provides a transition period of 180 days from the effectivity of the proposal to enable the Bureau of Internal Revenue to establish implementation systems before VAT is imposed on DSPs.
Earlier, House Committee on Economic Affairs Chairperson and AAMBIS-OWA Party-list Rep. Sharon Garin said the government is expected to gain P10 billion upon the enactment of the measure which can be used to fund Covid-19 response projects and “galvanize the country’s economic performance.”
Also, she said the measure is set to foster fair competition and provide equal footing between traditional and digital businesses by clarifying the imposition of VAT on digital service providers.
Garin clarified that the tax to be imposed will only be on transnational digital transactions and that there is no expected increase in the price of online transactions for locally-established service providers.
House Ways and Means Chairman Joey Sarte Salceda, one of the principal authors of the bill, has said the bill meant to introduce tax parity between resident companies and non-resident digital companies.
“We will not be taxing small businesses. Everyone making P250,000 in annual income will be exempt. Everyone accredited under the Barangay Micro Businesses and Enterprises [BMBE] law will be exempt,” Salceda added.