technology and taxation in the philippines
TRANSCRIPT
TECHNOLOGY AND TAXATION IN THE PHILIPPINES
Te c h n o l o g i c a l D i s r u p t i o n s a n d R e s p o n s e
10 th ANNUAL ASEAN TAX CONFERENCE 2019Technology and Taxation in ASEAN Countries:
How to Address the Tax Challenges Amid Technological DisruptionBangkok, Thailand
August 21, 2019
HON. MA. BELEN M. RINGPIS-LIBAN
Associate Justice
HON. CATHERINE T. MANAHAN
Associate Justice
• Globalization, digitization, and prevalance of e-commerce have broughtspecial challenges to taxation
• As businesses embrace new technologies, taxing authorities must also stayabreast of each development to ensure that no tax revenues are lost
• As businesses grow borderless, issues inevitably arise with respect to howtaxing rights on income generated from cross-border activities should beallocated among countries
• However, even from a purely domestic standpoint, e-commerce, onlinebusiness, and other technology-driven developments present challengeswhich need to be addressed
Introduction
Online marketplaces are websites and/or mobile applications that give a platform for numerous sellers
to sell their wares and items, without the need for each seller to own and operate their own website or online
store
These are third-party buy-and-sell platforms such as Lazada.com.ph or Shopee.ph
Current Disruption - Online Marketplaces
• These online selling platforms make it easy to sell online
Current Disruption - Online Marketplaces
Corporate Sellers Individual (start up) sellers
BIR Certificate of Registration One (1) valid government ID
DTI/SEC Permit Bank account details
Collection Receipt and Sales Invoice
• Are these sellers reporting their actual sales?
• Are these sellers filing the required returns and paying thecorrect taxes?
• How should the Bureau of Internal Revenue (BIR) audit andinvestigate these sellers?
Current Disruption - Online MarketplacesTax Challenges – Corporate online sellers
• How to investigate and trace individual sellers whomay not be registered with the BIR or othergovernment agencies?
• The contract requires the seller to complete their BIRregistration once their sales reach Php3 million, however,there is no monitoring for this
• Same challenges faced as with corporate online sellers
Current Disruption - Online MarketplacesTax Challenges – Individual online sellers
Revenue Memorandum Circular (RMC) No. 55-2013Reiterating Taxpayers’ Obligations in Relation to
Online Business TransactionsAugust 5, 2013
Current Disruption - Online MarketplacesPhilippine response
Like any other business establishments, persons who conductbusiness through online transactions have the obligations to:
• Register the business and pay the registration fee• Secure the required authority to print invoices/receipts and register books of
accounts for use in the business• Issue registered invoice or receipt• Withhold the required creditable or expanded withholding tax, final tax, tax on
compensation of employees , and other withholding taxes• File applicable returns, pay correct taxes and submit information returns and other
tax compliance reports• Keep books of accounts and other accounting records within the time prescribed by
law
Current Disruption - Online MarketplacesPhilippine response – RMC No. 55-2013
• Study the possibility of requiring the operators of onlinemarketplaces to submit a list of vendors to the BIR
• Conduct fora and roundtable discussions with onlinebusiness representatives and sellers to encourage them toregister with the BIR and to develop mutually acceptablegeneral policies and transparent rules in e-commerce and itstaxation
Current Disruption - Online MarketplacesPhilippine response – other suggestions
In 2016, the Philippines started licensing Philippine Offshore Gaming Operators (POGOs)
A POGO refers to an entity that offers and participates in offshore gaming services by providing games to
players, taking bets, and paying the winning players.
The POGO framework also covers service providers that provide the various components of gaming operations, such as the gaming software
provider, business outsourcing provider, and content streaming provider.
Current Disruption – Offshore gaming
• How to implement a fair and equitable taxation of onlinegaming businesses?
• How to monitor the revenues and revenue-generatingactivities of POGOs?
• How to adapt existing taxes to POGOs to lessen lost potentialtax revenues?
Current Disruption – Offshore gamingTax Challenges – Taxing POGOs
Revenue Memorandum Circular (RMC) No. 102-2017Taxation of Taxpayers Engaged in Philippine Offshore
Gaming OperationsDecember 27, 2017
Current Disruption – Offshore gamingPhilippine response
• POGO income is classified and taxed according to existingPhilippine tax laws, rules and regulations
• A POGO is required to:1. Register the business and pay the registration fee2. File applicable tax returns, pay correct internal revenue taxes, and submit
information returns and other tax compliance reports in accordance withexisting rules and regulations; and
3. Keep books of accounts and other business/accounting records within the timeprescribed by law, and such shall be made available anytime for inspection andverification by duly authorized BIR revenue officers.
Current Disruption – Offshore gamingPhilippine response – RMC No. 102-2017
• Reiterates that there is “accepted recognition that onlineactivity is sufficient to constitute doing business in thePhilippines”
• Subsequently, RMC 78-2018 (September 6, 2018) clarifiedthat a foreign corporation engaged in POGO is considered aResident Foreign Corporation
Current Disruption – Offshore gamingPhilippine response – RMC No. 102-2017 / RMC No. 78-2018
Estimated lost revenues from unreported or unregistered foreign POGO workers, whose amounts of personal income are
not subjected to withholding tax on compensation, are aboutPhp2 billion a month
Current Disruption – Offshore gamingTax Challenges – Taxing POGO workers
Joint Guidelines from the BIR, Bureau of Immigration, Department of Justice, and Department
of Labor and EmploymentMandating aliens to secure a tax identification number (TIN)
before issuance of the working permit
Current Disruption – Offshore gamingPhilippine response
Blockchain, the technology behind Bitcoin and other cryptocurrency, is not yet very entrenched in the
Philippines.
However, certain industries have started implementing blockchain in their processes
Emerging Disruption and Possible SolutionBlockchain Technology
In banking, Union Bank of the Philippines, launched thefollowing blockchain internal procedures and products:
• A blockchain-based platform for communicating policy,procedural guidelines and regulatory requirements
• i2i - A blockchain platform for cross-border remittanceservices for local rural banks
• PHX – Union Bank’s own stable coin to provide rural bankseasier access to remittances and payments in the i2iplatform
Emerging Disruption and Possible SolutionBlockchain Technology
In real estate, a blockchain-powered listing platform was launched seeking to simplify and streamline cross-border
property transactions.
It will have the capability to list units from different developers worldwide, process payments through different conventional
channels, and give out different analytical data to help potential buyers with their decisions
Emerging Disruption and Possible SolutionBlockchain Technology
While blockchain technology may provide challenges to the tax collection effort as more and more industries adopt it for
various processes, the Philippines is also aware that blockchaintechnology is being considered to promote tax
administration, compliance, and collection efforts
Thailand’s Revenue Department is already testing/implementing the use of blockchain for tracking VAT
payments
Emerging Disruption and Possible SolutionBlockchain Technology
• The developments in technology and how business isconducted have contributed to difficulties in taxation:
• Directly – as illustrated by online marketplaces and POGOs• Indirectly – as illustrated by the situation of POGO workers
• The Philippines still relies heavily on conventional methodsto ensure tax compliance and to drive tax collection,including brick and mortar surveillance and paper audits
Other Challenges
• The BIR is faced with limitations in its available technologyinfrastructure
• Re-training of BIR personnel to match the requiredcomputerized auditing skills in an e-commerce regime isboth time- and budget-consuming
Other Challenges
• The Philippines recognizes the developments in technology–driven businesses and has addressed these with variousissuances
• Recently, the Tax Code was amended, requiring furtherdigitization on the BIR’s part, as follows:
Other developments in Philippine law
National Internal Revenue CodeAs amended by RA 10963, January 1, 2018
Section 237. Issuance of Receipts or Sales or Commercial Invoices. –xxxWithin five (5) years from theeffectivity of this Act and upon theestablishment of a system capable of storing and processing the requireddata, the Bureau of Internal Revenue shall require taxpayers engaged inthe export of goods and services, taxpayers engaged in e-commerce, andtaxpayers under the jurisdiction of the Large Taxpayers service to issueelectronic receipts or sales or commercial invoices in lieu of manualreceipts or sales or commercial invoices xxx
National Internal Revenue CodeAs amended by RA 10963, January 1, 2018
Section 237-A. Electronic Sales Reporting System. –Within five (5) years from the effectivity of this Act and upon theestablishment of a system capable of storing and processing the requireddata, the Bureau shall require taxpayers engaged in the export of goodsand services and taxpayers under the jurisdiction of the Large TaxpayersService to electronically report their sales data to the Bureau through theuse of electronic point of sales systems xxx
• It is unclear why “taxpayers engaged in e-commerce” was deleted from Section 237-A
As the business sector embrace the new technologies beingmade available, so too must the government, especially in taxcollection efforts. In the meantime, business should not stop justbecause of the absence of taxation rules. It should be borne inmind that tax authorities abide by the tenet that a tax cannot beimposed unless the clear and express language of a statutesupports it. After all, if the technological advances serve aseffective tools in the development and growth of the nationaleconomy, then not only the government benefits but the entirecitizenry as well.
Conclusion