Marcos Jr. pitches taxes on digital services to service PH debt
By Lanz Ethan L. Galvan
In his maiden address to the nation, President Ferdinand Marcos Jr. laid out his administration’s plan to pursue reforms on the government’s tax system aimed at raising much needed revenues to better manage the country’s debt burden while still being able to invest for economic growth and recovery.
In particular, he highlighted the need to tax digital services through a digital economy measure which he mentioned will generate an initial Php 11.7 billion pesos in revenue in 2023 if passed by Congress.
This move, however, drew flak from some stakeholders as they argue it fails to address the current problems in taxation and even shifts the burden to the lower and middle income earners of the country.
New revenue sources needed to shore up debt
Marcos Jr’s first revenue-generating proposal comes on the heels of his government inheriting a record amount of debt incurred by the Duterte administration to fund its pandemic response.
The Bureau of Treasury estimates that the government would need to raise at least Php 249 billion in revenues each year to prevent unsustainable debt and deficit levels that may result in an economic crisis. As of April 2022, the country’s national debt stood at a record Php 12.76 trillion or around 54% of GDP.
He added that boosting collections through major tax reforms was critical to cut down debt below 60% of Gross Domestic Product (GDP) by 2025 and narrow the budget deficit to 3% of GDP by 2028.
Consequently, Finance Secretary Benjamin Diokno aired his support for the President’s plans and said that imposing a Value Added Tax (VAT) on digital transactions was essential for the government to generate around Php 348 billion in income from 2023 to 2027.
“While it may appear as an additional burden for those who will be paying for higher prices of digital services like Netflix, Spotify, and Youtube Premium, it is certainly a bitter pill to swallow in aid of helping the country’s economy,” Diokno said.
Diokno, however, clarified that the imposition of the 12 percent VAT on digital services would not cover transactions below Php 500.
In the previous 18th congress, the House of Representatives had already passed House Bill 7425 which proposed that all digital service providers such as Netflix, Lazada, Youtube, Google, and Facebook would be subject to a 12% VAT provided that their annual gross sales exceeded Php 3 million.
Fiscal consolidation and resource mobilization eyed
Alongside his push for new taxes on digital services, the President also bared his plans to streamline procedures for tax compliance which he believed would encourage convenience in paying taxes.
Among these measures to simplify the tax system is the Valuation Reform Bill which seeks to establish real property values and valuation standards across the country and the Passive Income and Financial Intermediary Taxation Act which aims to reform taxes on capital income and financial services.
Marcos allies, Business community welcome digital tax push
Senate President Juan Miguel Zubiri welcomed these tax reform plans and vowed to expedite the passage of an E-commerce law that would be both acceptable to the majority of stakeholders while still being able to generate revenue for the government.
He mentioned that although the imposition of new taxes may be unpopular, it was necessary to shore up rising debt and keep up with developed countries that were able to collect taxes from online services.
The same sentiments were echoed by Rizal Commercial Banking Corporation (RCBC) Chief Economist Michael L. Ricafort who lauded the proposed measures as necessary to allow the country to keep its credit rating.
“Better to intensify tax revenue collections and raise new taxes when economic conditions are better in view of the further reopening of the economy towards greater normalcy,” Ricafort said.
Kelie Ko, President of the Mandaue Chamber of Commerce and Industry (MCCI), affirmed the business community’s support for the president’s tax reform program. She noted that any plans to improve and adjust the tax system to keep up with developments in the digital economy would certainly be welcomed as it would have profound long-term positive implications to the economy and consuming public.
Backlash from the proposal
However, not all stakeholders were pleased with Marcos Jr’s pitch for new taxes. Albay Rep. and House of Ways and Means Chairman Jose Maria “Joey” Salceda, in particular, urged the government to first address tax leakages before imposing new taxes.
Salceda said that the first year of the Marcos administration should be devoted to streamlining tax collection and improving overall tax administration before even thinking about fiscal expansion.
On the other hand, former Bayan Muna Rep. Carlos Zarate slammed the proposed tax reforms as anti-poor and anti-consumer and said that the government should embark on a progressive tax system that taxes the rich more than the poor.
“If the government wants to increase its revenues… it can impose a 1% wealth tax on each million earned by a person or company rather than its current proposal which puts an unnecessary tax burden on the poor and middle class still struggling from the effects of the pandemic,” Zarate asserted.