Gov’t advised against VAT on digital transactions

September 14, 2022 People's Journal 197 views

A lawmaker cautioned the government on its plan to impose value added tax (VAT) on digital transactions as the consumption taxes are ultimately passed on to the consumers.

Senior Deputy Minority Leader and Northern Samar Rep. Paul Daza said “VAT, a consumption-based tax, is not always good for the economy.”

Daza expressed this concern as the House of Representatives started the plenary discussion on House bill 4122 or “An Act Imposing Value Added Tax (VAT) on Digital Transactions in the Philippines.”

According to Daza, the pass on to consumers will burden them especially at this time when there are still post-pandemic uncertainties.

“The intention is certainly good as we indeed need to impose VAT on big companies such as non-resident digital service providers (DSP), but we need to protect SMEs and other small players,” Daza said.

The proposed law aims to collect VAT from non-resident digital service providers (DSP) and local digital service providers, which include content creators that earn more than P 3 Million pesos annually. According to estimates, this measure can contribute up to P12 billion in additional government revenues per year.

VAT was the “simplest way” to approach the bill’s implementing rules and regulations. She also argued that direct taxation on the foreign companies “might [result] to retaliatory measures” in which the home countries of the non-resident DSPs may impose taxes on our exports.

Daza suggested that they instead require the foreign DSPs to properly register and establish residence in the Philippines before they can operate. That way, they can be directly taxed by corporate income tax laws.

The solon added that all efforts must be made to avoid “unnecessarily burdening the small players.”

“When I was in the private sector, I supported online startups so I’m familiar with their challenges. This might have a chilling effect; imposing more taxes on the local players just because we wanted to address the non-payment of taxes of outside players may do more harm than good,” he said..

He appealed to colleagues to seriously reconsider this bill, recommending potential changes such as increasing the annual income threshold to P 5 million instead of P3 million.

He noted that having such a low threshold may discourage potential entrepreneurs from engaging in digital businesses or disincentivize current enterprises from going further into digitalization due to the burden of VAT.