Senate approves VAT on digital services

THE PHILIPPINE Senate on Monday approved on its third and final reading a bill that seeks to impose a 12% value-added tax (VAT) on digital services provided by companies that do not have a physical presence in the Philippines.

All 23 senators voted in favor of Senate Bill No. 2528, which requires non-resident digital service providers to collect and remit VAT on all digital transactions from customers in the Philippines.

Under the measure, non-resident digital service providers and electronic marketplaces must register with the Bureau of Internal Revenue (BIR) for the payment of VAT on their services.

Digital services refer to services offered via the Internet or other electronic networks that use information technology. These include online search engines, online marketplaces, cloud services, online media and advertising, online platforms and digital goods.

If signed into law, the measure could apply to e-commerce companies such as Amazon, Shein, Rakuten, Taobao, AliExpress and Temu, which do not have a physical presence in the Philippines.

The BIR Commissioner may order the blocking or suspension of the services of digital providers if they fail to withhold and remit the 12% VAT.

The bill exempts online courses, seminars and training programs offered by private educational institutions accredited by the Ministry of Education and the Commission on Higher Education from paying the tax.

The services of banks and non-banking FFinancial intermediaries, including those who provide services through digital platforms, are also exempt from paying sales tax, according to a copy of the bill sponsored by Senator Sherwin T. Gatchalian.

The measure also has a reverse charge mechanism that requires a VAT-registered taxpayer who receives the digital services from these non-resident foreign companies and marketplaces to withhold and remit the VAT to the BIR.

“This (measure) would level the playing field with local market players on taxation and in addition to the principles on taxation, this would also increase the government’s source of recurring revenue,” said Rizal Chief Economist Michael L. Commercial Banking Corp. Ricafort said in a Viber message.

The Treasury Department expects the bill to raise P83.8 billion in revenue between 2024 and 2028.

The House of Representatives approved a similar measure in November 2022.

“This will increase tax revenues, but could be detrimental to businesses because this is an additional burden they can pass on to consumers, making products more expensive,” said John Paolo R. Rivera, president and chief economist at Oikonomia Advisory & Research, Inc., said in a Viber message.

Meanwhile, the Senate also passed on its third and final reading a bill that seeks to impose stricter penalties on those who use it Ffinancial accounts to commit crimes.

All 23 senators voted in favor of Senate Bill No. 2560, or the proposed Anti-Financial Account Scamming Act (AFASA), which would impose a prison term of at least six years and a fine of as much as P500,000 on those behind the money mule. schematics.

People found guilty of fraud could face up to 12 years in prison and a fine of at least P1 million, according to a copy of the measure sponsored by Senator Mark A. Villar.

The bill also punishes those guilty of economic sabotage – deliberately disrupting a country’s economy – with life imprisonment and a fine of at least £1 million, but not more than £5 million.

Both measures approved on Monday are part of the priority bills of the Legislative-Executive Advisory Council on Development. — John Victor D. Ordoñez