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Dapat Patas! Tax Expert Mon Abrea Calls for Fair Taxation Under New VAT on Digital Services Law

Photo for the Article - Dapat Patas! Tax Expert Mon Abrea Calls for Fair Taxation Under New VAT on Digital Services Law

Tax expert and Founding Chairman of Asian Consulting Group Mon Abrea emphasized that the newly implemented RA 12023, which imposes a 12% value-added tax (VAT) on digital service providers (DSPs), should focus on ensuring that foreign tech giants contribute their fair share in taxes rather than burdening local consumers.

Whatโ€™s the significance: Abrea is calling for Philippine regulators to ensure equitable taxation of foreign digital service providers, which can enhance tax revenue, support local businesses, and adapt to the expanding digital economy.


Key details: 

  • Tax expert Mon Abrea stresses the importance of fair taxation of foreign digital service providers (DSPs) under RA 12023.
    • Abrea advocates for prioritizing the adoption of OECD GloBE rules to compel multinational corporations (MNCs) to declare income in the Philippines and pay relevant taxes.

Key quote:

โ€œItโ€™s a welcome development to further expand the scope of VAT. While itโ€™s not a new tax, it will be another source of revenue for the government. However, since it is a consumption or indirect tax, foreign digital service providers will simply pass on the burden to its local consumers or subscribers which will result in an increase in prices and subscription fees.โ€

Mon Abrea, Founding Chairman and Chief Tax Advisor, Asian Consulting Group
Photo for the Article - Dapat Patas! Tax Expert Mon Abrea Calls for Fair Taxation Under New VAT on Digital Services Law
Raymond “Mon” Abrea (LinkedIn)

Abreaโ€™s pointers:

  • Consumer Impact: Abrea notes that the VAT is an indirect consumption tax, meaning foreign DSPs may pass costs onto local consumers, increasing prices and subscription fees.
  • Need for Registration: He emphasizes the necessity for multinational tech companies to register in the Philippines to contribute to the governmentโ€™s revenue from their local operations.
  • Challenges Ahead: While imposing the VAT is straightforward, collecting it poses challenges; prudent spending of the collected revenue is essential to foster voluntary compliance among taxpayers.
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The number: The Philippine government anticipates a projected revenue of approximately โ‚ฑ20 billion per year from this VAT on DSPs.

How it works: RA 12023 implements a 12% value-added tax (VAT) on nonresident DSPs, requiring them to register with the Bureau of Internal Revenue.

  • This law, effective since 2023, aims to ensure that foreign tech giants contribute taxes on revenue generated in the country, thereby supporting government revenue.ย 
  • The law requires foreign DSPs to register for VAT with the Bureau of Internal Revenue and proposes adopting OECD GloBE rules to hold multinational corporations accountable for their income.

What to watch out for: While RA 12023 is a step toward expanding tax revenue, there are concerns that the VAT will lead to increased prices for consumers as DSPs may pass on the tax burden. 

  • Therefore, the government must ensure the effective collection of this tax while maintaining consumer protection.
  • To maximize revenue collection from foreign digital service providers while promoting fair competition, the Philippine government must ensure effective implementation and compliance of RA 12023, alongside potential future reforms in tax administration and international collaboration.

Worth reading: In 2022, Abrea emphasized the need for clear regulatory mechanisms for cryptocurrency in the Philippines before taxes can be properly collected, noting that while the tax code is broad and encompassing, there are currently no specific guidelines for crypto taxation.

This article is published on BitPinas:ย Dapat Patas! Tax Expert Mon Abrea Calls for Fair Taxation Under New VAT on Digital Services Law

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