BSP: 12% VAT on Digital Services Necessary for Emerging Economies

By Shiela Bertillo

The Banko Sentral ng Pilipinas (BSP) stated during the European-Philippine Business Summit that it supports the proposal to impose a 12 % value-added tax (VAT) on all digital transactions.

BSP Governor Benjamin Diokno noted that taxing digital transactions is universal for both developed and emerging economies like the Philippines, adding that “taxing transactions is better than taxing income.”

“So I think there will be such a move and I think it’s fair. To me it’s a good tax,” he said.

Being a professor emeritus at the University of the Philippines in Diliman, Diokno stated that “it’s better to tax individuals on the basis of what they take away from society than what they contribute to society.”

“What you contribute to society is your income, right, but what to take away is your consumption. So it’s better to tax you on the basis of your consumption,” the Diokno added.

Last Sept. 21, the House of Representatives approved, with a voting of 167-6 with one abstention, House Bill No. 7425 that would impose a 12% value-added tax (VAT) on digital service providers in the Philippines.

The bill is meant to amend sections of the National Internal Revenue Code of 1997,  intending to impose VAT on electronic or online sale of services including online advertisement services and provision for digital advertising space, digital services in exchange for a regular subscription fee, as well as supply of other electronic and online services that can be delivered through the internet.

Moreover, the bill will parallel the level between traditional and digital businesses by adding a new section in the tax code that would require foreign digital service providers (DSPs) to collect and remit VAT for all transactions that go through their platforms. (Read more on: House Bill 7425 on Taxing Digital Services in the Philippines)

Accordingly, the proposed law could generate P10.7 billion in additional revenues every year based on the initial estimate from the Department of Finance (DOF).

Consequently, the DOF and the Bureau of Internal Revenue (BIR) said that they are monitoring Axie Infinity, a play-to-earn game, as the income Filipinos get from playing online games are taxable. (Read more on: BIR, DOF are Looking Into Axie Infinity, Earnings are Taxable says Finance Undersecretary)

Moreover, the BSP has also had its eye set on the game in regards to how players and merchants are using Smooth Love Potion (SLP), one of Axie Infinity’s in-game tokens, as a form of payment. The possible classification as an operator of payment system (OPS) of Axie Infinity’s is taxable under the proposed bill.  (Read more on: BSP Closely Monitors Local Axie Infinity SLP Merchants System)

This article is published on BitPinas: BSP: 12% VAT on Digital Services Necessary for Emerging Economies