House approves taxes on digital transactions

MANILA – The House of Representatives on Tuesday night approved on final reading a proposal imposing a 12 percent value-added tax (VAT) on digital transactions in the country to generate new funding sources for the country’s Covid-19 response efforts.

With 167 affirmative votes, six negative votes, and one abstention, the Chamber passed on third reading House Bill 7425 seeking to amend Section 105 of the National Internal Revenue Code (NIRC) by taxing digital service providers that operate through online platforms.

The bill seeks to clarify the imposition of VAT on online advertisement services, digital services in exchange for a regular subscription fee, and supply of other electronic and online services that can be delivered through the Internet.

Albay Rep. Joey Salceda, a principal author of the bill, said 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, Salceda said.

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.

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.

The bill would also exempt books and other printed materials that are sold electronically or online from VAT.