Philippine President Marcos Jr pushes tax on digital services

Just less than a month after taking office, Philippine President Bongbong Marcos Jr on Monday addressed Congress and made his first revenue-generating proposal to address the country’s huge debt incurred from its response to the Covid-19 pandemic.

“Our tax system will be adjusted in order to catch up with the rapid developments of the digital economy, including the imposition of value-added tax on digital service providers,” he said. 

Marcos Jr said that taxing digital service providers will yield an initial 11.7 billion pesos (US$208.6 million) in revenue next year if passed by Congress.

He added that the revenue will cut the Philippines’ debt to below 60% of gross domestic product (GDP) by 2025 and narrow the budget deficit to 3% of GDP by 2028.

See related article: Philippines gets new government, will new crypto taxes follow?

Marcos Jr’s plan is not new in the Philippines. In September 2021, the country’s House of Representatives passed House Bill 7425 that sought to impose a 12% value-added tax (VAT) on digital service providers. But this bill failed in the Philippine senate.

In a briefing on Tuesday, Finance Secretary Benjamin Diokno said the Department of Finance will work closely with Congress to formulate and enact “appropriate and timely” policy measures.

Meanwhile, Sheine Girao, cofounder and chief legal officer of Tetrix Network, a Filipino blockchain platform, told Forkast that the network welcomes Marcos Jr’s plan to tax digital services.

“It’s a step forward. It’s a long time coming for us to provide parameters for taxation and digital service providers, especially since during the onset of the pandemic, we have already heightened the usage of digital services over the Internet,” she said.

“If the president would be able to approve of this bill, then we would be able to have better governance as regards [to] value-added tax. More to that, of course, is the certainty of collection. The implementation is also another thing to be considered.”

Will the new tax apply to crypto exchanges?

House Bill 7245 defines digital service providers as those that offer digital services or goods to buyers through an online platform or by making transactions for the provision of digital services on behalf of any person.

Rafael Padilla, co-founder of BlockDevs Asia, told Forkast that the definition is broad enough to include virtual asset service providers.

See related article: Philippine central bank governor says no plan to ban crypto

This was also echoed by Tetrix Network’s Girao. “[The] ‘digital services’ in this sense appears to be too broad and encompassing as to probably construe crypto exchanges to be included in this category,” she said.

However, she said that crypto exchanges should have separate legislation for taxation. “These [crypto exchanges] have varying taxing incidents that need further parameters and safeguards for proper implementation.”