‘Philippines VAT must align with international standards’

MANILA, Philippines — The Philippines should align the proposed value-added tax (VAT) on digital transactions with international standards to ensure permanent gains in the long run, according to the Asia Internet Coalition.

AIC, an industry association focused on regional internet policy issues, reminded lawmakers to carefully look into the provisions of the proposal.

This developed as the government moves to amend the Tax Code and impose a 12 percent VAT on digital transactions in a bid to boost state coffers and level the playing field.

“We urge lawmakers to align their VAT proposal on cross-border trade with internationally agreed standards and global best practices,” AIC managing director Jeff Paine said in a statement.

The VAT on digital service providers is among the bills that the Department of Finance wants President Marcos to certify as urgent to ensure sufficient government financing of the national budget and meet the administration’s medium-term goals.

The proposed VAT on digital transactions is in the advanced stages in the upper chamber.

“A VAT taxation policy framework should be consistent with international norms and built around the key principles of neutrality, efficiency, certainty and simplicity,” Paine said.

“As these will provide long-term stability and certainty for businesses to continue to innovate and invest for the future,” he said.

The AIC is composed of leading internet and technology firms in Asia-Pacific. It seeks to promote the understanding and resolution of internet policy issues in the region.

Estimates from the DOF showed that the 12 percent VAT can generate an additional P96.72 billion over the next five years from digital advertising, subscription-based services, and other services using information and communication technology-enabled infrastructure, among others.

VAT is the largest source of tax revenue on average and the Asia-Pacific is the fastest growing e-commerce region in the world.

The DOF’s estimate assumes a 50-percent collection efficiency in the first year of implementation by 2024 and an improved collection at 70 percent by 2025 until 2028.

A more conservative projection sees revenues reaching P72.69 billion at 50 percent collection efficiency over the course of the five-year period.

On the other hand, a maximum of P145.37 billion can be collected from 2024 to 2028 if the government will have a 100-percent collection efficiency.

The assumption covers VAT on digital media, such as digital music, video games and video-on-demand. It likewise covers digital advertising, including audio, banner, classifieds, influencer, search and videos.

At present, the tax system in the country only covers the traditional business landscape, which means that substantial revenues have been missed in the digital economy, especially since the pandemic started.

Under the Tax Code, any sale of goods in the Philippines and supply of services rendered in the country, whether electronically or not, is subject to VAT.

Offshore transactions, however, are VAT-exempt.