MANILA - The Department of Finance on Thursday again pushed for imposing value added tax on foreign digital service providers saying this can raise P96.72 billion in revenues for the government.

During the hearing of the Senate tax panel, DOF Undersecretary Dakila Napao said the figure is the estimated collection from 2024 to 2028 from the proposed measure.

Napao also noted that local digital service providers already pay a 12 percent VAT, unlike non-resident digital firms.

“Not taxing these non-resident digital service providers, we also have our local digital service providers that we have been imposing VAT. This could lead to inequitable tax treatment between the two,” Napao said.

The Finance official added that refusing to impose VAT on foreign digital companies was “eroding the tax base.”

The DOF has said before that service platforms like Netflix, Spotify, Facebook and Google need to be taxed.

“We think it is high time to capture and not lose out on significant potential revenues,” Napao added.

The measure proposes taxing online licensing of software, updates, and add-ons, website filters and firewalls; mobile apps, video games, and online games; webcasts and webinars; provision of digital content such as music, files, images, text and information; and ad platforms.

It also includes electronic marketplaces or networks for the sale, display, and comparison of prices of trade products or services; search engine services; social networks; database and hosting such as website hosting, online data warehousing, file sharing and cloud storage services.

A similar bill has already been passed last year by the House of Representatives.

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Some ASEAN countries have been imposing VAT on digital services to capitalize on the growth of the digital economy. In Japan and South Korea, 10 percent VAT is imposed, while a 7 percent VAT is imposed by Singapore.

The Bureau of Internal Revenue maintained that legislation is needed for the agency to collect taxes on digital services consumed in the country despite the providers’ operating from another country.

He said that these service providers should pay VAT even if they have no physical presence in the Philippines.

“Services are VATable because services are performed in the Philippines,” BIR Assistant Commissioner Larry Barcelo said.

The proposed bill suggests a penalty of closure of business for delinquent entities.

Meanwhile e-commerce company Lazada Philippines it will not be directly affected by the measure as they have been paying taxes as a locally-operating company.

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However, Lazada Head of Legal Joustine Campaña warned that sellers may pass on the VAT to consumers.

The measure may also raise operating costs.

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“Cloud services, where we store data and cloud-computing services that are performed outside of the Philippines, Microsoft Office suites. If these services increase in so far as cost are concerned, we’ll have to adjust as well in so far as operating expenses are concerned,” Campaña said.

Senate Ways and Means Committee Chairman Senator Win Gatchalian meanwhile said the proposed measure was “tricky.”

“Legislating policy to, in effect, regulate the digital economy is very tricky... the digital economy is very dynamic,” Gatchalian said.

Gatchalian requested for e-commerce platforms for a position paper on the downstream impact to consumers.

He also questioned the capability of the Department of Information and Communications Technology to implement a closure for offshore businesses. He asked the DICT to explain the process of blocking sites as it will be a crucial part of the implementation of the bill.

The BIR should also lay out how it plans to audit reports of digital platforms particularly if operating outside the country, he said.

The bill will be tackled by a Technical Working Group tentatively scheduled next week.

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