The Philippines should impose a tax on digital services, according to a new report from the World Bank.
The World Development Report 2021: Data for Better Lives says the Philippines is one of the countries in East Asia that’s losing out on substantial revenue for not collecting tax, specifically value-added tax (VAT), from digital services operating inside the country.
Along with other Association of Southeast Asian Nation (ASEAN) countries like Thailand, Vietnam, Singapore, Indonesia, and Malaysia, the country is losing out on a collective sum of US$5 billion to US$10 billion in potential tax revenues.
The report says that the significant growth of the B2C (business to consumer) industry in these countries during the pandemic resulted in an equally great increase in the potential of the sector when it comes to tax revenue collection. It notes that the ‘indirect tax potential’ grew eightfold from US$0.46 billion in 2015 to US$3.7 billion in 2019.
“Evidence from East Asia indicates that the rapid growth of B2C [business to consumer] e-commerce has resulted in equally significant growth in the tax potential of the sector, with the indirect tax potential growing some eightfold, rising from US$0.46 billion in 2015 to US$3.7 billion in 2019,” the report revealed.
Besides this, the World Bank says aspects of the digital economy like food delivery and online media have seen rapid growth in sales, especially its taxable potential.
“Other aspects of the digital economy, including online media and food delivery, have seen similar rapid growth in sales and indirect tax potential,” the report said.
The World Bank notes that if left alone, the country could miss out on larger opportunities as the demand and use of digital services and online transactions are only expected to go even higher than it is now.
In order to address the loss in potential tax collections, the Washington-based global partnership recommends the adoption of a handful of tax policy changes.
“In considering proposals to tax the digital economy, policy-makers in all countries should seek those that ensure equitable taxation of data-driven businesses, unlocking a potential revenue source for flattening the debt curve after the Covid-19 pandemic. They should also ensure that those sectors that have gained the most from the crisis are contributing their fair share,” the report explains.
The motion to tax digital platforms and services in the Philippines is nothing new. In fact, back in 2020, the House of Representatives Ways and Means Committee Chair Joey Salceda proposed for a 12 percent VAT to be imposed on online streaming sites and services like Netflix and Lazada.
According to him, the digital tax could mean a P29.1-B increase in revenue for the country.
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