VAT on digital transactions

SENATOR Pia S. Cayetano is pushing for legislation to levy value-added tax (VAT) on all digital transactions, saying it’s fair to traditional businesses that have been subject to VAT law for decades.

In Senate Bill 250 filing, the senator proposes to charge VAT on all sales and barter or exchange of products and services carried out “digitally or electronically” or using Internet technologies such as “online shopping, online video games, social networks, online courses and webinars, online newspapers and materials with digital content such as movies and music.”

Cayetano explained that this measure should not be seen as a new tax, but as a clarification of the mandate of the Internal Revenue Service (BIR), designed to strengthen the powers of the BIR so that it can properly collect VAT from all digital service providers based inside and outside the country.

She added that it is also based on a similar law sent by the House of Representatives to the Senate in the 18th Congress, which aims to equalize the treatment and taxation of traditional and digital businesses.

This means, she explained, that if a department store purchase is subject to VAT, VAT must also be subject to a purchase made on an online shopping platform, and ZBI must also collect it from the digital service provider.

In addition, Cayetano noted that, according to an international report, the Philippines has “the fastest growing Internet economy in Southeast Asia”, with 12 million new digital consumers since the start of the Covid-19 pandemic in 2020 – apparently because the quarantine forced people to buy food and shop online for most of the products and services they need.

As the country continues to accelerate towards digitalization, it is important that the tax collection system keeps up with developments, Cayetano said.

In his State of the Union Address, President Ferdinand Marcos Jr. said the government expects to raise 11.7 billion pesos in 2023 through the introduction of VAT on digital service providers.