House OK’s tax on foreign digital services, removal of tax exemption on pickups

A smartphone with the Netflix logo is seen in this illustration taken March 24, 2020. — REUTERS/DADO RUVIC/FILE PHOTO

THE HOUSE of Representative on Tuesday approved on second reading three priority tax measures, which seek to remove the tax exemption on pickup trucks and impose taxes on foreign digital services and single-use plastic bags.

“The measures could yield a total of P47 billion annually,” Albay Rep. Jose Ma. Clemente S. Salceda, who chairs the House Ways and Means Committee, said in a statement.

Mr. Salceda said P20 billion is expected to be generated from House Bill (HB) No. 4339 or the fourth package of the Comprehensive Tax Reform Program (CTRP), mainly from the removal of the tax exemption on pickup trucks and raising the tax rate on foreign currency deposit units to 20%.

He defended removing the tax exemption for pickup trucks, which was opposed by the auto industry, saying “merely corrects an unfair privilege on a vehicle that is mostly for the rich, occupies very large space on the road, and is by all accounts less fuel-efficient than most other vehicles.”

The measure also seeks to simplify taxation of passive income by reducing rates applicable and harmonizing most rates at 15%. It also proposes a gross receipts tax on bank, quasi-bank and other nonbank financial intermediary income of 5%, a premium tax of 2%, and a stock transaction tax of 0.1%.

HB 4339 proposes to rationalize the documentary stamp tax (DST) regime by imposing a single rate on the original issue of shares and units of participation of collective investment schemes. It also seeks to remove the DST on documents required for routine transactions.

At the same time, Mr. Salceda said around P19 billion in revenues can be raised from HB 4122, which will slap a 12% value-added tax (VAT) on nonresident digital service providers, such as Netflix and Spotify.

“For the digital services VAT, it will not be imposed on Filipino businesses. The emphasis is on foreign or nonresident digital service providers. All major ASEAN (Association of Southeast Asian Nations) economies impose VAT on these entities. We’re the only ones that do not,” Mr. Salceda said.

If signed into law, a 12% VAT will be imposed on the digital sale of services including video on demand subscriptions, online advertisements and supply of other electronic services which can be delivered through mobile applications, online marketplaces and webcasts, among others.

This would also amend the National Internal Revenue Code of 1997 to include a section that would require foreign digital service providers (DSPs) to collect and remit VAT for all transactions that are done through their platforms.

Lawmakers also included a provision stating that 5% of the revenues from the VAT on digital service providers will be allocated for the Creative Industries Development Fund.

Meanwhile, the House also approved on second reading HB 4102, or the Plastic Bags Act, which is expected to raise P9.3 billion in revenues.

The measure seeks to impose an excise tax of P100 for every kilogram of single-use plastic bags sold. Lawmakers increased the amount of excise tax to P100 from P20, and added a provision stating the tax rate would be increased by 4% every year starting Jan. 1, 2026.

Incremental revenue from the tax will be allocated to the programs of the Department of Environment and Natural Resources.

Mr. Salceda said he expects the House to approve the three bills on third reading by Nov. 14 or 15.

Meanwhile, the House Committee on Government Reorganization is expected to take up the Real Property Valuation and Assessment Reform Act or Package 3 of the CTRP within the week. — Matthew Carl L. Montecillo