Finance Secretary Benjamin Diokno said Friday the imposition of 12-percent value-added tax on digital transactions is a right move that will level the playing field with traditional businesses.
Diokno’s statement came in the wake of the House of Representatives’ approval on Nov. 14 of a bill that seeks to clarify the imposition of VAT on digital transactions.
House Bill 4122, or the proposed law Imposing Value-Added Tax on Digital Transactions in the Philippines, does not impose new taxes, but clarifies the imposition of VAT on electronic or digital services such as digital advertising, subscription-based services and other services using information communication technology-enabled infrastructure.
Educational services such as online courses and webinars rendered by accredited private educational institutions are exempted from the imposition of VAT.
“It is only right that we allow our businesses to operate on even ground, and this bill rightfully clarifies which digital services to tax,” Diokno said.
“It is not fair to only tax traditional businesses like restaurants and retail stores, and not tax online platforms like Netflix,” Diokno said.
Digital service refers to any service that is delivered or subscribed over the internet or other electronic network. Digital services cannot be obtained without the use of information technology and the delivery of such services may be automated.
Digital service providers offer digital services or goods to a buyer. This may be through operating an online platform for the purpose of buying and selling goods and services or by making transactions for the provision of digital services on behalf of any person.
HB 4122 will level the playing field between digital and traditional businesses, especially those that cannot shift to the digital platform. This effectively treats businesses equally regardless of their nature.
The bill, which was overwhelmingly approved by the House, aims to increase government revenues by taxing entertainment-based streaming services and other digital transactions. Albay 2nd District Rep. Joey Salceda earlier estimated that the bill would contribute around P19 billion in government revenues annually.
The bill intends to impose a 12-percent VAT on the digital sale of services such as video-on-demand subscriptions; online advertisements and supply of other electronic services, which can be delivered through mobile applications; online marketplaces; and webcasts, among others.
The proposed measure also allocates 5 percent of the revenues from VAT on digital service providers for the Creative Industries Development Fund.