Salceda bill and the already suffering restaurant industry

An estimated 4.2 million Filipino families experienced involuntary hunger in the past three months. If a family has four members, that is an estima­ted 16.8 million Filipinos going hungry due to the quarantine imposed to stem the spread of the new coronavirus disease (COVID-19).

Of these 4.2 million families, around 700,000 families or 2.8 million individuals suffered from severe hunger. These details are part of a survey done by the Social Weather Stations (SWS), which was released on May 21.This relates to the report of Labor Secretary Silvestre Bello III that over 2 million workers from nearly 80,000 establishments have been displaced by the pandemic.

When people are out of work, they become reliant on the government’s “ayuda (help),” which in many cases has been slow in coming and inadequate in quantity, ultimately resulting in hunger.

At the rate things are going and the losses businesses have suffered, it is understandable why more than 50 micro, small, and medium enterprises (MSMEs) with around 190,000 employees have submitted a temporary closure notice to the Department of Labor and Employment (Dole).

Restaurants and other businesses in the food industry, for their part, have been trying to survive through deliveries.

Their business models have shifted to enhancing customers’ dining experience at home. Takeaway menus and delivery services are the new normal.

Grab, Lalamove and Angkas have proven to be heaven-sent. Without deliveries, businesses especially in the food industry would be dead.

Interestingly, there is a proposal now in the form of House Bill No. 6765 entitled “An Act Establishing A Fiscal Regime for the Digital Economy.”

The bill seeks to make “network orchestrators” like Grab and Angkas withholding agents for income tax and Lazada and Shopee withholding agents for value-added tax (VAT), supposedly “to raise P29.1 billion new revenues to help fill [the gap caused by the COVID-19].”

The bill says network orchestrators are “persons, typically aided by information technology, that act [to] create a network of accredited service providers and service consumers, and that act as intermediaries that facilitate the matching of a consumer’s service needs with a provider’s available services.”

The bill also proposes to, among others, subject to VAT services rendered electronically and the digital advertising by Google, Facebook, Netflix and Spotify. I will leave the discussion of this part to other columnists.

But relevant to the restaurant industry is the part of the bill making these various digital platforms withholding agents for VAT “to ease their partners of the burden of having to pay their own taxes, while also encouraging tax compliance.”

The bill would add this line to Sec. 57 (Withholding of Tax at Source) of the National Internal Revenue Code: “Provided, that when taxable income and/or revenue is derived through membership in a network orchestrator system, the tax imposed under Sections 24(A) of this Code shall be withheld by the network orchestrator.”

There is, as yet, no detailed literature to explain what the intricate genius of author Albay 2nd District Rep. Joey Salceda envisions for the execution of the bill.

It appears though that this seeks to tax advertisers on the network (the apps) and the delivery drivers, i.e. the fee paid to the delivery guy would, with this bill, become subject to withholding tax.

It is also appears that the bill will tax restaurants/establishments making use of the app.

Tax experts we have consulted believe this section may be unnecessary because if the receipt from Grab or Angkas already covers both the charge for the service and the product being delivered, then taxes (VAT and income) are already paid. Also, Grab and Angkas are payees, not payors, unless this bill seeks to withhold the taxes on Grab’s or Angkas’ purchases from restaurants?

Then there is the consideration that the end user—individuals or the general public—would not remit taxes to the BIR for, say, a simple cheeseburger that he or she buys.

Considering that so many establishments are now forced to take on a business model that requires delivery services, let’s hope this new tax collection method (the author argues that there is no new tax imposition) does not discourage or become an added burden to them.

Let’s hope Congress would consider the plight of businesses, especially hotels, restaurants and other food entrepreneurs who are already suffering even as the bill proposes out-of-the-box methods of tax collection to raise funds for the government.

I hope that Congress can come up with a win-win solution wherein government and private enterprises would work together—not at the expense of the other—to revive the economy.

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