Regional pacts to boost PH bid to slap VAT on digital services

MANILA — The Philippines should continue to explore multilateral options to secure the cooperation of foreign online platforms in its bid to tax digital transactions, state think tank Philippine Institute for Development Studies (PIDS) said.

In a research paper, PIDS said options include signing regional tax treaties with blocs like the Association of Southeast Asian Nations (Asean) and European Union that would help smaller economies like the Philippines consolidate negotiating power, and make multinational online platforms share information that local tax collectors need to capture digital transactions.

The PIDS paper titled “Rethinking Taxation in the Digital Economy: Approaches to Harnessing Online Markets” was authored by Emerson Bañez, assistant professor at the University of the Philippines College of Law.

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”Cross-border tax administration will depend on a baseline of international cooperation, which can be secured through renegotiation of bilateral treaties with countries where online platforms are sited,” Bañez said.

”However, unless smaller economies find additional leverage or combine their negotiating power, such bilateral ties can only offer limited gains,” he added.

Amid a pandemic-led boom in e-commerce transactions, among the priority measures of the Marcos administration is to impose value-added tax (VAT) on digital service providers (DSPs) like Netflix, Spotify, Facebook, and Google.

Leveling the playing field

The measure seeks to level the playing field between local and foreign DSPs by clarifying that the services they provide in the country are subject to VAT.

READ: PH losing out on tax collections from digital transactions, says PIDS

Based on the latest estimates by the Department of Finance, the current form of the legislation is expected to bring in a total of P83.8 billion in revenues from 2024 to 2028.

But Bañez argued that optimizing the local tax base and passing new legislations—which may not even apply to firms headquartered abroad where the Philippines has no jurisdiction—“can only go so far.”

If taking the multilateral approach, Bañez said efforts at negotiating and crafting provisions should take into account the country’s trading power relative to peers as well as its comparative ability to exercise jurisdiction.

“The Philippines can consider an incremental approach. For instance, it may enter into an OECD (Organization for Economic Cooperation and Development) framework-like agreement with regional blocs (Asean, EU). Such blocs can negotiate as an organization to counterbalance the larger economies,” he said.—Ian Nicolas P. Cigaral