Bill Taxing Digital Economy in Philippines to Kill “Infant” Industry, Says Fintech Sector Group

Fintech, a coalition of fintech and digital companies, has tagged a proposed bill in the House of Representatives to tax electronic transactions as an “abortifacient” to the digital transformation of the country.

Lito Villanueva
Lito Villanueva

“We fully understand that taxation is the lifeblood that sustains and nourishes every government,”

writes Lito Villanueva, chairman of Fintech

“But we are likewise aware of its power to destroy emerging digital enterprises that are still at an embryonic stage in the Philippines.”

House Bill 6765 or the Digital Economy Taxation Act of of 2020, authored by House of Representatives ways and means committee chairman Rep. Joey Sarte Salceda, shall amend the National Internal Revenue Code “to better capture value created into the tax system.”

Key provisions in the measure include “network orchestrators” that link customers to service providers and leasers becoming withholding agents for income taxes, clarifying that services rendered electronically, digital advertising and subscription-based services are liable to value-added tax, and requiring foreign business who render digital services in the Philippines to work through local agents or offices.

Fintech says these disincentives will deter digital learning, innovation, and future-readiness of the Philippines.

“It takes sustained capital intensive investments and infinitely lot of time before digital goods and services become profitable,”

says Villanueva.

“The goal for a digital venture is to simply gain user scale and adoption with little regard to revenues and hope to bridge the chasm between the early adopters and the early majority of consumers and providers alike, to make the digital product viable,”

Villanueva adds.

Instead, the government should actually reward micro and small and medium enterprises in moving their products to online platforms. This is one of the suggestions offered by the group in case the passage of the bill becomes inevitable.

Other proposals include a phased approach for imposing value added taxes to domestic content or domestic online platforms and taxation to the advertising income of digital platforms of foreign publicly listed companies that have digital presence in the Philippines being subject to international tax treaties, among other revisions in the bill.

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