THE House of Representatives on Tuesday approved on second reading three priority tax measures topped by Package 4 of the Comprehensive Tax Reform Program (CTRP). The two others are the bill placing under VAT coverage the non-resident digital service providers and one imposing taxes on disposable plastic bags, which could yield a total of P48 billion annually.
Through viva voce voting, the House plenary approved on second reading House Bill 4102, or the Single-use Plastic Bags Tax Act, House Bill 4122, or the VAT on Nonresident Digital Service Providers, and House Bill 4339 or Package 4 of the Comprehensive Tax Reform Program.
House Committee on Ways and Means Chairman Joey Sarte Salceda said these measures could yield a total of P48 billion annually.
Of P48 billion, Salceda said some P19 billion will come from the nonresident DSP VAT, P9.3 billion from plastic bags, and P20 billion from Package 4, the bulk of which will come from removing the tax exemption in pickup trucks, and increasing the tax rates on foreign currency deposit units to 20 percent.
“With this, the House wraps up with all the priority tax measures of the Duterte-era Comprehensive Tax Reform Program, and is ready to move on to tax collection reforms, as prioritized by the Marcos administration,” Salceda said.
“That is around 2 percent of BIR collection targets, and 0.2 percent of GDP, so [Finance] Secretary [Benjamin] Diokno only needs to look for 0.1 percent of GDP more in tax collection improvement. The Medium -Term Fiscal Framework, which we in Congress approved, takes into account 0.3 percent of GDP in tax collection efficient improvement every year,” Salceda said.
For the digital services VAT, Salceda clarified that it will not be imposed on Filipino businesses.
“The emphasis is on foreign or nonresident digital service providers. All major Asean economies impose VAT on these entities. Tayo na lang ang hindi [We’re the only ones who haven’t done so],” Salceda said.
Salceda said the proposed Digital Economy VAT Law will close ambiguities in the VAT system that have allowed some digital services and goods sold over the digital space to remain outside the coverage of VAT.
The bill clarifies that digital services such as digital advertising, subscription-based services, and other online services that can be delivered through the internet are VAT-able.
The measure also aims to strengthen tax compliance through simplified invoicing and registration requirements for VAT-registered nonresident DSPs.
The bill refers to the “digital service provider” as 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.
P100 tax on plastic
On plastic bags, Salceda added that the plastic bags tax—an excise tax of P100 per kilo of disposable plastic bags—is in line with the country’s efforts to fight ocean pollution, especially “as we are now recognized ignominiously as the world’s biggest ocean plastic polluter.”
The bill said the rate of tax imposed under this proposal shall be increased by 4 percent every year, effective on January 1, 2026, through revenue regulations issued by the secretary of Finance.
House Committee on Ways and Means Vice Chairperson Mikaela Angela Suansing, principal author of the bill, said the use of plastic bags as means of transporting fresh produce, meat, clothing, and other consumption good has become customary in the conduct of trade not only in the Philippines but in other countries as well.
To reduce its costly environmental impact, several countries imposed taxes on the use of plastic bags, while others have even gone so far as to implement a total ban, she said.
By imposing this levy, she added, all stakeholders will be encouraged to explore and utilize environment-friendly alternatives to single-use plastic bags given its detrimental effects on the individual while generating additional revenue for the government.
This proposal will help fund the government’s solid waste management programs under the Ecological Solid Waste Management Act of 2000.
The bill defines the plastic bag as secondary level plastics made of synthetic or semisynthetic organic polymer, commonly known as “labo” or “sando” bags, with or without handle, used as packaging for goods or products.
The Philippine Plastics Industry Association Inc. (PPIA) told lawmakers that the proposal will hurt and eventually kill the industry.
The group said members of the industry are currently facing the negative impact of local ordinances banning the use of plastic bags in their areas. Several local government units have already issued ordinances against the single-use plastic bags.
Package 4
Salceda said the proposed Package 4 of the CTRP seeks to make passive income and financial intermediary taxes simpler and more efficient.
This bill was approved on third and final Reading during the 18th Congress.
This measure will redesign the taxation of the financial sector by making it simpler, fairer, and more efficient, critical to its role in the long-term growth and development of the economy.
The bill covers the lifting of the exemption on pickup trucks, which, Salceda said, “merely corrects an unfair privilege on a vehicle that is mostly for the rich, occupies very large space on the road, and is by all accounts less fuel-efficient than most other vehicles.”
In 2020, Salceda said the government’s total collection from bank deposits amounted to P58.84 billion while the percentage taxes on financial institutions was around P42.90 billion.
“These significant contributions add to government coffers used to finance large-scale infrastructure, create more and better jobs, and boost economic growth,” he said.
Currently, Salceda said there are several tax rates and tax bases on passive income, financial services, and transactions.
The tax on income, meanwhile, varies depending on the term of the instrument, the issuer, the currency involved, and the residency of the income recipient, he said.
During hearings on the bill, Salceda said the Department of Finance had recommended that the number of combinations of tax bases and rates applicable to passive income, financial intermediaries, and financial transactions be reduced from 74 to 52. The committee adopted such recommendation.
The measure aims to level the playing field by harmonizing tax treatments for certain transactions of financial institutions.
It seeks to simplify the complex structure of the financial sector, ensure neutrality in tax treatment across financial institutions, improve equity among investors and savers, minimize arbitrage opportunities, and promote capital market development and tax competitiveness within the context of financial globalization, increased capital mobility and financial inclusion.
Meanwhile, Salceda expects the three tax measures to be approved on third reading in the House by Monday or Tuesday next week.
The lawmaker also envisions the measures being ready for discussion in the Senate, which is also expected to tackle the Ease of Paying Taxes (EOPT) Act.
“I think we will have at least one tax law enacted over the next six months, very possibly EOPT. But I am hopeful that we will have at least one more, hopefully one of these three,” he said.
Image credits: House of Representatives/Facebook