The Philippines is mulling over a proposed Bill that is touted to "better" capture value created by the digital economy and have the likes of Netflix, Google, Facebook, and Lazada "pay their fair share". The Digital Economy Taxation Bill aims to generate up to an additional 29.1 billion pesos ($468.39 million) in revenue per year, providing funds that would help the country amidst the COVID-19 pandemic.
The Bill would plug loopholes due to ambiguities in the taxes digital services in order to better capture value created by digital services in the tax system, said Albay district representative Joey Sarte Salceda, who filed the Bill. The politician is also chair of the country's House Ways and Means Committee, which oversees matters related to fiscal issues including tariffs, revenue, credit, and taxation.
Salceda said in a Facebook post on Wednesday: "No new taxes here. We just want them to pay their fair share. Assuming you're a company that sets up in the Philippines, and you do video-streaming or music-streaming services, you will definitely pay taxes. But companies like Netflix and Spotify don't. That's obviously not fair.
"When you're a network in the Philippines, advertising services paid to you will be subject to VAT (value-added tax), but Google and Facebook are not subject to VAT for advertising," he said.
The official added that online marketplaces such as Lazada and Shopee were growing rapidly due to the COVID-19 pandemic, but there might be tax compliance issues amongst their merchant partners. He explained that current policies did not include these marketplace operators as withholding agents and, as such, tax generated from merchant sales might not be properly captured.
"Simply put, these are not new taxes. These are tax administration measures that we hope will capture the value more fairly," he said. [This is] especially [critical] when local businesses are struggling due to COVID-19 and there are these companies that are making a killing because of isolation, but are not paying enough taxes."
According to Salceda, Facebook and Google earned 50 billion pesos ($804.79 million) from ads "catering to and paid by Filipinos", but did not pay VAT or income tax. "Is that fair?" he said. He added that Netflix earned 5 billion pesos ($80.48 million) in subscriptions from Philippine customers and was not subject to VAT, when local TV networks such as DCTV and Skycable paid VAT and income taxes.
And while e-commerce operator Lazada paid 15 billion pesos ($241.44 million) in taxes last year, its overseas sellers did not. "So we make Lazada a withholding agent. Is that a new tax or a tax increase? No, we just make their overseas sellers pay VAT. This is online smuggling," he noted.
The Bill recommends "network orchestrators", such as Grab and Angkas, become withholding tax agents for income taxes to "ease" their partners of having to pay their own taxes and ensure tax compliance. It also states that services delivered electronically for trade or business should be liable to the country's VAT as should digital advertising by the likes of Google and Facebook, as well as subscription-based services such as Netflix and Spotify.
Operators of lease services such as Airbnb and e-commerce platforms including Lazada and Shopee also should be withholding tax agents for VAT, according to the proposed bill.
Salceda noted that the Bill would not affect social media users who did not advertise on these platforms, adding that the notion that social media networks should charge users was "a bad reading" of the proposed legislation.
The politician did not state how much the digital tax would be, but suggested this could vary depending on the service. He told local news agency Inquirer.net the current digital service tax for subscriptions worldwide was typically 5%, but said Chile imposed a much higher 19%. He mooted that the Philippines could introduce a 12% tax on subscriptions of video and music streaming services.
Pointing to e-commerce platforms, Salceda said only half of vendors that peddled goods and services on these online marketplaces including Lazada, Amazon and Shopee paid VAT. These platforms, he said, should be made withholding agents to capture the unpaid VAT.
He said the Philippines' e-commerce market was projected to be worth 260 billion pesos ($4.18 billion) this year, generating some 30 billion pesos ($482.88 million) in VAT.
When gazetted, the digital tax Bill could enable the government to block online or digital platforms who refuse to pay the right taxes or comply with the tax laws.
Indonesia this month announced plans to introduce a 10% VAT on digital services delivered by foreign companies. To commence July 1, the new digital tax could mean products and services such as video games, music, and movie streaming content are affected.
Singapore earlier this year also began charging a goods and services tax (GST) on overseas digital services, expanding the tariff beyond locally procured products. This impacted a wide range of services including downloadable content such as e-books and mobile apps, software such as office suites, subscription-based media such as music streaming and online games, and electronic data management such as cloud storage and web hosting.
According to the Inland Revenue Authority of Singapore (IRAS), more than 100 providers of such services had enrolled under the city-state's Overseas Vendor Registration (OVR) regime, which meant they would begin charging GST on the sale of their digital services from tomorrow. The government agency defined digital services as services supplied online or an electronic network that required minimal or no human intervention and are "impossible without the use of information technology".
- Online retail sales surge 49% during pandemic shutdown
- APAC shoppers still buy in-store, but more seek hybrid commerce
- Southeast Asia internet economy exceeds $100B, online population hits 360M
- APAC nations pledge digital cooperation, but acknowledge some implementation challenging
- Digital economy can push Asean GDP up $1T, if markets operate as one
- APAC consumers have little trust in digital services
- Asia driving global mobile payments, with eight in top 10 markets