The proposed tax on digital services will level the playing field between local and foreign suppliers at a time when the economy needed a revenue boost to recover from the COVID-19-induced recession, the World Bank said.
But the World Bank and the state planning agency National Economic and Development Authority’s (Neda) joint report titled Philippines Digital Economy Report 2020 said that while digitalization would aid an economic rebound, the Philippines still lagged behind most of its neighbors and emerging market peers in terms of digital infrastructure.
The report’s lead author and World Bank economist Kevin Chua noted that the Philippines still suffered from high internet costs, slow internet speeds and low broadband penetration.
At the same time, digital adoption in the Philippines was also a laggard, Chua said, although the “new normal” brought about by the pandemic necessitated faster digitalization.
To address these challenges, Chua said both the government and the private sector needed to upgrade digital infrastructure, promote digital payments, improve the logistics system and foster a conducive business environment so Filipinos could catch up.
To facilitate better digital infrastructure, competition must be promoted by allowing more players in the telecommunications space, Chua said.
Chua welcomed the incoming entry of the third telco player and even more competitors—“definitely, we have to move away from a duopoly market structure” partly by opening up the sector to foreigners. “If we have more players in the country, that’s likely the ingredients to have a better infrastructure, lower costs and better internet connectivity. There’s really a push for more private sector participation.”
As for the pending measures in Congress aimed at collecting value-added tax (VAT) from digital goods and services, Chua noted that the Philippines’ neighboring countries like Indonesia and Malaysia were also moving in the same direction.
Chua said digital taxation would level the playing field as local firms were already paying VAT, while foreign suppliers were not.
For instance, Chua noted that purchases from digital marketplaces, if sourced locally, were being slapped with VAT; on the other hand, imported goods were not levied the same 12-percent tax on consumption.
However, the Organization for Economic Cooperation and Development’s Center for Tax Policy and Administration had warned that even as digital taxation would shore up government revenues during a recession, it may also deter digitalization from further flourishing. INQ