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Concerns raised over feasibility and impact of digital VAT in the Philippines

Senator Pia Cayetano’s proposed Senate Bill No. 250, which seeks to implement a 12% value-added tax (VAT) on digital transactions, has sparked a range of responses from stakeholders.

The bill’s primary objective of equalizing the treatment of resident and nonresident digital service providers and expanding the tax base to enhance revenue collections appears reasonable on the surface. However, questions have arisen about the necessity of imposing a 12% VAT on digital transactions when consumers already pay taxes on purchases made in physical stores.

Senator Cayetano emphasizes that the Philippines boasts the fastest-growing internet economy and argues that the government must align its revenue-generation capabilities with this growth.

Mon Abrea, chairman and Chief Tax Advisor of the Asian Consulting Group, suggests an alternative approach to address the issue. Rather than burdening local subscribers and consumers with a 12% VAT, Abrea proposes exploring the adoption of the Organization for Economic Cooperation and Development’s (OECD) Global Minimum Tax.

This would shift the responsibility for tax payment to tech giants and multinationals through income or digital service taxes, thereby sparing consumers from directly bearing the additional cost in their subscriptions.

Abrea also raised concerns over the feasibility of collecting taxes from foreign tech giants like Netflix, who are not currently registered in the Philippines. He argued that the core challenge lies not in the potential tax collection amount, but rather in the practicality of enforcing tax obligations.

He proposed that Congress mandate foreign tech giants to register in the Philippines and pay income tax on their earnings within the country to establish a fair playing field.

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