House committee OKs VAT on digital transactions

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    Deadline for registration of online sellers extended

    Digital consumers may soon find themselves paying taxes for their digital transactions and platforms like Netflix and Spotify.

    The House committee on ways and means yesterday approved its chair Albay Rep. Joey Salceda’s bill which seeks to impose a 12-percent value-added tax (VAT) on all digital transactions and platforms.

    This developed as the Bureau of Internal Revenue (BIR)  extended the deadline for business registration of those into digital transactions, or the updating of status with no penalty imposed, to August 31, as online merchants who wished to cooperate asked for more time to comply

    At the House of Representatives, The still unnumbered bill seeks to amend the National Internal Revenue Code of 1997 to make digital transactions covered by VAT.

    “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,” Salceda 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,” Salceda said.

    Finance Assistant Secretary Daki Napao said the measure can yield  P10 billion in revenues, of which P9 billion will come from foreign businesses and P1 billion from local companies.

    Under the approved committee report, foreign corporations that sell digital services, such as Netflix, Spotify, and others, will have to pay for and impose VAT on their services.

    “We imposed no new taxes. We’re simply clarifying that they should be VAT-ed. In general, if you sell, you pay VAT, unless you fall under the exemptions for small businesses,” Salceda said.

    Deputy speaker party-list Rep. Sharon Garin of AAMBIS-OWA party-list, a panel vice chair, said the target of the measure are digital service providers from abroad that do not pay local taxes and not local online sellers.

    “Any person who, in the course of trade or business, sells barters exchanges, leases goods or properties—including those in digital or electronic in nature—renders services, including those rendered electronically, and any person who imports goods shall be subject to the VAT,” the bill said.

    The bill added VAT is an “indirect tax and the amount of tax may be shifted or passed on to the buyer, transferee or lessee of the goods, properties or services.”

    Under the bill, Section 2 of the National Internal Revenue Code is amended by introducing a new Section designated as Section 105-A or “Persons Liable in Digital or Electronic Transactions.”

    “The non-resident digital service provider is liable for assessing, collecting, and remitting the value-added tax on the transactions that go through its platform,” it said.

    The measure defines a digital service refers to “any service that is delivered or subscribed over the internet or other electronic network and which cannot be obtained without the use of information technology and where the delivery of the service may be automated.

    Digital services shall include online licensing of software, updates, and add-ons, website filters and firewalls; mobile applications, video games, and online games; webcast and webinars; provision of digital content such as music, files, images, text and information; advertisement platform such as provision of online advertising space on intangible media platform; online platform such as electronic marketplaces or networks for the sale, display, and comparison of prices of trade products or services; search engine services; social networks; database and hosting such as website hosting, online data warehousing, file sharing and cloud storage services; internet-based telecommunication; online training such as provision of distance teaching, e-learning, online courses and webinars; online newspapers and journal subscription; and payment processing services.

    Salceda said the panel found out that 77 percent of the revenues will come from upper middle-income families and above and only 0.04 percent of all revenues from this proposal will come from the bottom 20 percent of the population.”

    “The effective income tax rate on the bottom 20 percent of the population is 0.01 percent and that progresses until 0.09 percent for the highest income classes. This is the mildest imposition you can make when the country is in severe need of new revenues. And it covers a mostly discretionary spending,” he  said.

    Salceda said the measure “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.”

    Salceda also said  small businesses will continue to be VAT exempt, meaning sales that are below P3 million.

    “If your net income as a sole proprietor is below 250,000, you are exempt from paying and filing income taxes. So, the small Facebook online seller will not be taxed,” he said.

    Meanwhile, BIR Revenue Memorandum Circular (RMC) No. 75-2020 dated July 29, 2020 states that the deadline has been extended from the previously set date of July 31.

    The BIR said  those who will voluntarily declare their past transactions subject to taxes, and pay the taxes due, on or before the said date, will not be subject to the corresponding penalty for late filing and payment.

    “The business of selling goods and services through online network has been observed to be experiencing an intensified growth at this time when most citizens are into home quarantine brought about by the global coronavirus disease 2019 pandemic. As a consequence, the bureau reminded those doing business and earning income selling through any electronic platforms and media of their tax obligations by issuing RMC No. 60-2020,” the BIR said.

    “Online merchants have signified their cooperation but are requesting for more time to comply due to the current problem in going to the district offices such as the means of transportation, fear of dealing face to face with others, limited open bank branches for their funding, and others,” it added.

    The BIR said that all those who will be found later doing business without complying with the registration/update requirements, and those who failed to declare past due taxes/unpaid taxes shall be imposed with the applicable penalties. (with Angela Celis)