DOF: P145-B additional revenues with VAT on digital transactions

The Department of Finance (DOF) has projected P145 billion in additional revenues if the government will impose the 12-percent value added tax (VAT) on digital transactions from 2024 to 2028.

The DOF disclosed this at a Senate hearing on bills seeking to collect VAT from digital service providers.

“If we will use 100 percent compliance, for the five- year period, I recall that this will amount to P145 billion,” Finance Undersecretary Dakila Napao told the Senate ways and means committee.

With 50 percent compliance, Napao said the government could collect around P77 billion within the same period.

The DOF’s projection includes collection of VAT from digital media which includes digital music, video games, and video-on-demand or streaming platforms.

The computation also covers projected taxes from digital advertising including audio, banner, classified, influencers, search, and video advertisements.

The proposed VAT on digital services excludes educational services and the sale of online subscription-based services, according to the DOF.

Napao clarified that the government is not imposing new taxes, but is simply strengthening the Bureau of Internal Revenue’s authority to collect VAT on digital transactions.

He explained that the government is seeking to clarify the imposition of VAT on electronic or online sale of services, define the liable digital services providers (DSPs), require non-resident DSPs to register for VAT if gross sales or receipts for the past year have exceeded P3 million, and require non-resident DSPs to collect and remit the VAT on transactions that pass through their platforms.

BIR Assistant Commissioner Larry Barcelo said the bureau cannot impose tax on non-resident DSPs because they have no physical offices in the Philippines.

“They are not in the Philippines. They are not registered. So we cannot even audit them. They are not here. We cannot look at their books. So that’s really the legal constraints,” Barcelo said.

If the government will not impose VAT on non-resident DSPs, Napao said this will lead to inequitable tax treatment between domestic and foreign firms.

“If we impose VAT on transactions of both domestic and the non-resident DSP, we are in effect creating an even playing field for these businesses. We also note that if we continue to not impose VAT on these non-resident service providers, we are, in effect, eroding the tax base,” he said.

“So I think that it is high time to capture and not lose out on significant potential revenues that can increase or shore up these VAT on these transactions,” he added.

Due to the growth of the digital economy, the DOF said many East Asian countries have already collected taxes from digital transactions and services, including Cambodia, Indonesia, Japan, Laos, Malaysia, Singapore, South Korea, Taiwan, Thailand, and Vietnam.

With the imposition of such taxes in various jurisdictions, Napao said they view this as an “acceptable scheme” and even the industry players have agreed to comply with the VAT collection.

Several bills in the Senate and the House of Representatives seeking to impose VAT on digital transactions have been filed in the 19th Congress.

The bill is among the measures that President Ferdinand “Bongbong” Marcos Jr. had mentioned in his first State of the Nation Address.

The President’s chief economic manager, Finance Secretary Benjamin Diokno, has been vocal in proposing the imposition of “correct” taxes on streaming service payments and other digital transactions as a way for the government to earn additional revenues.

Diokno earlier said the proposal to tax digital services is being made “on the basis of fairness” as digital transactions had the tendency to “evade” imposing taxes unlike purchases made over-the-counter.—LDF, GMA Integrated News