Diokno backs tax on digital services

INCOMING Finance Secretary Benjamin E. Diokno is eyeing the imposition of taxes on digital transactions and streaming services such as Netflix and Spotify.

Mr. Diokno, who is currently the governor of the Bangko Sentral ng Pilipinas (BSP), said in a GMA News interview that most digital transactions are not being taxed properly.

“Right now, if these [streaming services] can evade taxes, why not tax it?… And who can afford Netflix? It’s not the poor. So, they (consumers) can afford it,” he said.

“Many transactions are digital. Those can slip by, not paying the proper amount of taxes, compared to, for example, buying from a store. That’s unfair. And who can use those kinds of (digital) transactions more? Those with cellphones, the rich.”

A 12% value-added tax (VAT) on digital service providers is part of the tax reforms proposed by outgoing Finance Secretary Carlos G. Dominguez III as part of a fiscal consolidation plan. The VAT would be online advertisement services, digital services and supply of other electronic and online services.

The House of Representatives approved in September 2021 a bill seeking to impose a 12% VAT on digital sale of services such as online advertisements, subscription services, and supply of other electronic and online services that can be delivered through the internet such as mobile applications, online marketplaces, online licensing for software, and webcasts, among others.

However, the Senate has yet to approve the counterpart measure.

At that time, the Finance department estimated the proposed tax, if signed into law, could generate P10.66 billion in government revenues.

NO NEW TAXESMr. Diokno will head the Finance department after President-elect Ferdinand R. Marcos, Jr. assumes office on June 30. The incoming administration is facing the challenge of raising more revenues in order to repay the debt incurred during the pandemic.

“I will not immediately raise taxes,” Mr. Diokno said, adding that they will focus on tax administration and digitalization. “To me, the approach to tax collections, you have to use technology to improve tax collections.”

Outgoing Finance Secretary Carlos G. Dominguez III said the next administration should raise revenues with tax reform packages, improve tax administration and cut unnecessary spending with fiscal reforms.

The Bureau of the Treasury has estimated the government needs to raise P249 billion every year in incremental revenues to avoid resorting to borrowings to pay the P3.2-trillion additional debt incurred during the pandemic. As of end-March, the National Government debt stood at a record P12.68 trillion.

Mr. Diokno said he prefers to focus more on VAT or consumption tax collection.

“(VAT is) the most effective tax globally. It’s easy to collect. We should focus on these kinds of taxes,” he added.

Mr. Dominguez earlier said the VAT rate could be lowered to 10% from the current 12%, but the VAT base should be expanded.

Mr. Diokno also said that the use of technology can also be used to curb smuggling.

“I think the use of technology to collect more taxes, even use the satellites, you can track the movements of ships. There’s a lot of smuggling going on. You can track them.”

He also expressed no objection to a wealth tax if it is approved by Congress.

“My policy is like this, how much time and effort are you going to spend on a bill, for example, that you think wouldn’t even pass?” he said. “So, you should focus on big items, such as VAT.” — TJT