Bicam approves VAT on foreign digital service providers

In pushing for the earmarking provision, Salceda argued that taxes on imported goods are “typically earmarked for domestic support.” (File Photo: Erik Mclean/Unsplash)

MANILA – The bicameral conference committee on Thursday approved the final version of a bill imposing a 12 percent value-added tax on foreign digital service providers, which is a priority legislation of the Legislative-Executive Development Advisory Council (LEDAC).

House ways and means committee chair Joey Salceda said the VAT on digital services would ensure an equal playing field between local and foreign digital service providers, considering that the latter had “unfettered and untaxed access” to the Philippine market, particularly at the peak of the displacement of traditional goods by digital services during the pandemic.

“While resident content producers were subject to VAT and income taxes, foreign service providers were not,” he said. “This unfairness to the domestic sector for at least four years is why the House contingent believes that we owe the resident creatives sector some measure of compensation and support.

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Salceda said the two chambers of Congress achieved consensus on two issues –withholding tax on percentage taxpayers as proposed by the Department of Finance (DOF), and the earmarking of funds for the local creatives sector.

“The bicam quickly agreed on two remaining items. On withholding taxes for percentage taxpayers, we agreed with the DOF proposal, which will allow the Secretary of Finance to set withholding tax rates for those who are not VAT-covered.

We obtained assurances that small taxpayers will not be subject to excessive audits or complicated compliance,” Salceda said.

He said protection for small business, such as the Barangay Micro Business Enterprise Law, and the Ease of Paying Taxes with respect to risk-based audits, will still apply.

“What the DOF proposal simply does is instead of paying their percentage taxes at the end of the year, the taxes will be withheld by the e-commerce site,” Salceda added.

Taxpayers subject to percentage tax are those who fall below the PHP3 million VAT threshold set under the Tax Reform for Acceleration and Inclusion (TRAIN) law.

Salceda said the bicameral committee also agreed to earmark 5 percent of incremental revenues, or around PHP900 million, to the creatives sector.

“We also negotiated with the Department of Finance to keep the earmarking provision in the House version. My counterparts in the Senate also agreed to the earmarking,” he said.

In pushing for the earmarking provision, Salceda argued that taxes on imported goods are “typically earmarked for domestic support.”

He said the LEDAC-priority bill is expected to generate as much as PHP18 billion on its first year.

“It will also close a VAT loophole, which will improve VAT collections as a whole,” he added.