House panel approves tax on digital services

Salceda noted that foreign corporations selling digital services, such as Netflix, Spotify, and others, will have to pay for and impose VAT on their services. (Pexels photo)

MANILA – The House of Representatives’ Ways and Means Committee on Wednesday approved a proposal imposing a 12 percent value-added tax (VAT) on digital transactions in the country.

The panel, chaired by Albay Rep. Joey Salceda, approved a substitute bill seeking to amend Section 105 of the National Internal Revenue Code (NIRC) by taxing digital service providers that operate through online platforms.

Salceda noted that foreign corporations selling digital services, such as Netflix, Spotify, and others, will have to pay for and impose VAT on their services.

“We have now clarified that digital services and the goods and services traded through digital service providers should generally be subject to VAT. This is just a matter of common tax sense,” he said. “If brick and mortar establishments, which are the hardest-hit by the pandemic, have to pay VAT, the giants of e-commerce shouldn’t be exempt.”

Digital services include online licensing or software, updates and add-ons, website filters and firewalls, mobile applications, video games and online games, and webcasts and webinars.

It also includes the provision of digital content, such as music, files, images, text, and information; online advertising spaces; electronic marketplaces; search engine services; social networks; database and hosting; and online training, among others.

Salceda said no new taxes would be imposed, as he guaranteed exemptions for small businesses.

“If your sales are below PHP3 million, you are exempt from paying or filing VAT. If your net income as a sole proprietor is below PHP250,000, you are exempt from paying and filing income taxes.

So, the small Facebook online seller will not be taxed. I guarantee you,” he said.

Some 77 percent of the projected revenues would come from upper-middle-income families and above, Salceda said, adding that only 0.04 percent of all revenues from this proposal would come from the bottom 20 percent of the population.

“This is the mildest imposition you can make when the country is in severe need of new revenues. And it covers mostly discretionary spending,” he said. “In other words, this will not be felt by the most vulnerable households, and will be felt only very mildly by the richest households, but it will certainly generate new revenues for our Covid response.

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