VAT on digital transactions pitched

SENATOR Pia S. Cayetano is pushing for passage of an enabling legislation imposing the value-added tax (VAT) on all digital transactions, saying it is but fair to traditional businesses that have for decades been covered by the VAT law.

In filing Senate Bill 250, the senator proposes to collect the VAT on all sales and barters, or exchange of product and services done “digitally or electronically,” or using Internet technology, such as “online shopping, online video game, social network, online courses and webinars, online newspapers and those with digital contents like movie and music.”

Cayetano clarified that the measure should not be seen as an imposition of a new tax, but a clarification of the Bureau of Internal Revenue (BIR) mandate, meant to strengthen BIR’s authority so it can collect VAT properly from all digital service providers based within and outside the country.

She added that it was also anchored on similar legislation forwarded by the House of Representatives to the Senate in the 18th Congress, which aimed to equalize the treatment and imposition of taxes on traditional and digital business.

Which means, she explained, that if a purchase in a department store is imposed a VAT, the VAT should also be imposed on a purchase made in an online shopping platform and the BIR must also collect it from the digital service provider.

Moreover, Cayetano noted that based on an international report, the Philippines had the “fastest-growing internet economy in Southeast Asia,” where 12 million new digital consumers were added since the Covid-19 pandemic started in 2020—apparently because lockdowns forced people to buy food and shop online for most of the products and services they required.

As the country continues to accelerate towards digitalization, Cayetano said that it is thus important for the tax collection system to keep pace with developments.

In his State of the Nation Address, President Ferdinand Marcos Jr. said the government is looking to collect P11.7 billion in 2023 from the imposition of the VAT on digital service providers.