Key Takeaways: House Bill 7425 on Taxing Digital Services in the Philippines

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By Shiela Bertillo

The House of Representatives on Tuesday evening approved a bill that would impose a 12% value-added tax (VAT) on digital service providers in the country.

House Bill No. 7425 was approved with a voting of 167-6 with one abstention on the third and final reading; the bill is meant to amend sections of the National Internal Revenue Code of 1997 and parallel the level between traditional and digital businesses.

The proposed VAT shall also cover electronic or digital sale of services such as online advertisements and provision for digital advertising space as well as supply of other electronic and online services that can be delivered through the internet.

Likewise, online licensing of software, updates and add-ons, west filters and firewalls; mobile applications, video games and online games; webcast and webinars; and provision of digital content such as music, files, images, text and information are also covered.

Moreover, the bill also seeks to tax search engine services; social networks; internet-based telecommunication; online training such as the provision of distance learning, e-learning, online courses and webinars; online newspapers and journal subscription and ad payment processing services.

The bill would also add 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.

Non-resident DSPs would be required to register for VAT if gross sales for the past year from the implementation of the proposed law have exceeded P3 million; however, foreign DSPs providing services to the government would pay a lower VAT at 5%.

Albay Rep. Joey Salceda, House ways and means committee chairman and principal author of the bill, stated that the measure should not count as a “new tax” as it only “closes loopholes for large foreign corporations.”

However, the fact remains that the tax would likely be shouldered by the user, making it still a new tax for the citizens.

Recently, the Department of Finance (DOF) and the Bureau of Internal Revenue (BIR) stated that they are looking into Axie Infinity, the popular play-to-earn game by Sky Mavis, a Vietnam-based video game company, 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 Bangko Sentral ng Pilipinas (BSP) is also closely monitoring Axie Infinity in regards to how players and merchants are using Smooth Love Potion (SLP) as a mode of payment. The central bank stated that it is looking into Axie Infinity’s possible classification as an operator of payment system (OPS), which is taxable under the proposed bill. . (Read more on: BSP Closely Monitors Local Axie Infinity SLP Merchants System)

This article is published on BitPinas: Key Takeaways: House Bill 7425 on Taxing Digital Services in the Philippines

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