VAT on Philippine digital services? Lotsa luck!
Analysis and Opinion
By Joe America
I was curious about the forthcoming VAT on digital services. I used the Senate’s third reading of their bill for reference, which is available in PDF format: S. No. 2528
- A) THE TERM ‘DIGITAL SERVICE’ SHALL REFER TO ANY SERVICE THAT IS SUPPLIED OVER THE INTERNET OR OTHER ELECTRONIC NETWORK WITH THE USE OF INFORMATION TECHNOLOGY AND WHERE THE SUPPLY OF THE SERVICE IS ESSENTIALLY AUTOMATED. DIGITAL SERVICES SHALL INCLUDE, BUT NOT LIMITED TO: (1) ONLINE SEARCH ENGINE; (2) ONLINE MARKETPLACE OR E-MARKETPLACE; (3) CLOUD SERVICE; (4) ONLINE MEDIA AND ADVERTISING; (5) ONLINE PLATFORM; OR (6) DIGITAL GOODS.
There are exclusions for education and banking services.
The tax applies to domestic and foreign distributors of digital products and services. In my opinion, writing the IRRs for this bill will be challenging.
I currently pay for a variety of services obtained over the internet. I have subscriptions to 1) a Microsoft family package at about $120 per year, 2) Adobe at $30 per year, and 3) Windy.com’s premium weather service at $20 per year. I also buy 4) Amazon books electronically; that’s about $200 per year.
Do these providers know I am in the Philippines? That will be the IRR’s first challenge. Will they require all internet service providers on the planet to track the locations of their customers so they know when they are in the Philippines? Their services are available anywhere. They are global services. Not Philippine services.
I use a lot of Google services but don’t pay anything for them. Google makes money selling ads and I never buy anything from internet ads. But does Google have to track clicks on ads that come from the Philippines, calculate a value, and remit it to the Philippine tax authorities? How will tax authorities audit Google?
What happens if Microsoft, Adobe, Windy, Amazon, and Google say they cannot track customers? What happens if the US cries “no fair taxing our companies, we don’t tax yours!”?
What happens if the US companies will not provide services in the Philippines because the scheme is onerous?
I conduct stock transactions through a US broker. It is unclear if this is a banking exclusion or not. If it is not an exclusion, I would expect the broker to stop accepting trades from the Philippines. They do know I reside here and already limit what I can do because of the Philippines’ bad reputation (money laundering).
The problem with this digital tax scheme is that the internet is a free range services provider. Chickens, or customers, can wander onto anyone’s property looking for bugs. The Philippines wants to charge the chicken ranchers if the chickens eat bugs from their property. And they want the chicken ranchers to tabulate the weight of the bugs the chickens eat. And bear the cost of doing it.
Well, enough of that and the chicken ranchers will put up fences so the chickens don’t eat in the Philippines.
And I’ll have to move to Guam.
The biggest chicken rancher, of course, is the United States. And the US thinks it is improper for other nations to tax its companies. The US is threatening to apply retaliatory tariffs against countries that hatchet its chicken ranchers. European countries lead the hatchet pack, as this article delineates: Digital Services Taxes in Europe, 2024
The article reviews Organisation for Economic Co-operation and Development (OECD) efforts to build an agreed international taxing scheme called Pillar One, but you can imagine the rats nest of conflicting self-interests that entails. Here is OECD’s progress report on the program: Fact Sheet Amount A. It’s complicated.
The Philippine Government seems to me to be approaching desperation in its fiscal management. It is expanding VAT levies and recently raided Phil Health reserves to the tune of 90 billion pesos. Debt is reaching record highs and they just can’t get inflation down, or growth up, to projected ranges. Poor fiscal discipline is exactly what drove Marcos Senior out. Now we hear echoes.
I’m also reminded of the SMS registration fiasco which was supposed to curtail text scams but didn’t. This digital tax scheme will have fallouts that the simplistic minded legislators do not care about. They are driven by greed. Give them taxes and give us headaches, or Phil Health clients death, it matters little to them.
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Cover photo from Word Press image creator using the article as a prompt.
The Society of Honor by Joe America 
I need a VPN because too many countries block access when you do not reside there (I am looking at you, BBC and NOS), so whatever happens, Philippines cannot even track my whereabouts digitally. Lots of luck with that bill, using a VPN might be cheaper than paying those taxes, so what do you think will happen???
Chaos.
my understanding is that 12 per cent vat will be taxed on digital foreign providers, and not on their customers here. these foreign digital providers are already raking in billions and can well afford to pay the new vat.
joeam, if your stock broker is based in the states, the broker is most likely out of bounds of philippines law, and the new vat may not apply to you. similarly if your broker re-invest your earnings on your behalf also in the states, you ought not pay philippines tax, unless your broker sent your income back to you, and your income enters philippines territory. then IR will be after you.
however, if the new vat applies to you (very unlikely), the US brokerage will let you know.
1. What is the basis, then, of the Philippines taxing US companies? And should not the shareholders be angry at the Philippines for acting like China does in Philippine seas? Plenty of fish in those big seas.
2. I pay a transaction fee and I think that is the taxable component. Very definitely residence in the Philippines gets me penalized. Today.
3. The US most certainly objects to other countries taxing her corporations.
https://news.abs-cbn.com/business/2024/6/27/lawmakers-finalize-bill-imposing-vat-on-digital-service-providers-1708
link could answer lots of questions: the link within the link, noteworthy read.
govts around the world are apparently doing the same thing, going after the bigger fishes and cashing in on the new boom. it is alleged that digital local service providers are already paying said vat, foreign digital service providers should too, even if they dont have physical presence here. presumably digital services are vat-able.
what that mean for us costumers? I dont really know. I am not a bigger fish and certainly not a digital service provider, but a consumer.
though more money could be had for govt coffer, to be spent on infras like school buildings, hospitals, roads, etc. things that apparently make our lives better. and hopefully, jeepney drivers who cannot consolidate get into this quickly and asked that since there is to be more money coming into the kaban ng bayan, that they be considered for govt loans at lower interest so all drivers can consolidate soonest.
The corporations will pass the tax to consumers. I’ll pay $144 for microsoft rather than $120. Filipinos will pay the tax on their Lazada purchases. Or their microsoft purchases. Google will raise ad prices for gatorade, and gatorade will increase the prices in the Philippines. There is no free money. Corporations aren’t cash hoarding piggy banks. They are obligated to make profits for shareholders. It’s a tax on Filipinos, not American fat cats.
They will make it difficult for Amazon,Google and other cloud services to stay here if they ate already here.
We are planning to build hectares of data centers, whom do will they house?
Excellent question. The US companies are huge and Google in particular is criticized for having near-monopoly control of search service. No Philippine company can compete for sure. So Google is definitely profiting from services to Filipinos. You Tube ads sell Philippine products here. So I’m sympathetic to google paying taxes here. But taxing Microsoft services? Boy, that gets dicey. Does the Philippines want Microsoft products here or not? If I pay $144 for cloud services rather than $120, do I care? No. Would Filipinos care? Hmmmmm.
Then what is the use of tax free PEZA incentives if they will just cancel it out with this.
Mysteries for sure.
I’ll say to those future data centers: Watch out for brownouts!
Power and Water as if we do not have pre existing ailments.
Highest electricity rates in the region….
No additional water souce like the Kaliwa dam and that is for Luzon only.
Karl, the craziest thing that I saw the last time I was in the Philippines is how it seemed to me a large portion of potable water was imported. There are two long monsoon seasons in the Philippines, and as I’m not an expert, I wonder what it will take to capture the constant rain during the monsoon season and impound the water into a reservoir for later usage.
Only the mall owners and a few enterprising individuals have the jnitiative to capture and store rain water. The enemy is dengue
I look to South Africa, which has only a fraction of the Philippine rainfall. Many dams there ensured ample water availability, until the population increased unexpectedly and maintenance & construction efforts stopped 25 years ago. BUT.. it shows that a poor country can do it. The USA, ofcourse has many dams and without those, many parts of the country would not function.
Here, in The Philippines, I only see a few dams, mostly old and tired. But it also is a state of mind. I have 120m3 rainwater in my garden and the water tanks were the priority in construction, thereby reducing the construction costs (delays due to water shortage are very expensive). I just shake my head when during the dry seasons increasingly people get in problems. When you get your priorities wrong, you will eventually pay the price. The story of poverty is mainly b.s. How many of those castles in Manila have adequate rainwater catchment? Why is the old 800m3 water tank on our island in disrepair and the Red Cross build a lot of waterwells instead after Yolanda? I talk to people starting construction and promote that they start with a water tank first, but they only install one of those blue 5m3 tanks to save money. Now with the dry periods probably getting worse, some people start thinking, but retrofitting is very expensive and I do not see many dams in the budgets. One of the issues which can raise its ugly head soon: a mega city without water is an unimaginable disaster. 4 years ago, they had to start trucking water for Cape Town. A few hundred kilometers per trip. I do not think this is feasible for Manila. This year, trucking in Iloilo started. Filipino’s are flexible and the issue was considered a one-off which they survived. So, no problem….
* For the country, municipalities should include potable water availability in their CLUP (the mandatory 10 year plan).
* For the individuals: If you are not in a very polluted area, then catch your rainwater, filter it and store it in tanks. Not hollow block tanks please, proper water tanks. Install a sand filter between the gutter and the tank, goto your local hardware store and get a filter for your drinking water tap and you will be OK. Do not rely on a local water pump, the water probably is polluted with agricultural waste products which are used generously and the buro of mines is often not testing for this.
Building dams takes 10 years from concept to completion. About time to start. Ask your municipality for the CLUP and see what is planned w.r.t. drinking water and ask the questions when those politicians come campaigning in the coming months.
Well, you can always try…..
Thanks for always sharing your experience Paul I mean Pablo.
In Cavite those dikes that were intended for irrigation with now almost non existent agricultural land can be used for water consumption.
Irrigation is heavily budgeted and yet land conversion by the mall owners is still rampant.
The Kaliwa dam is a must, but the “respect” for indigenous people’s demands prevents us from just letting the water from Sierra madre just go down the Pacific ocean drain.
I live in Paranaque and most have overhead tanks, but the reviving of the deepwell for emergency use was heavily opposed here from where I live.
That’s exactly what I was thinking too. Even a cheap tarpaulin draining to a tank would work, or catching rainwater from corrugated roofing. It always seemed amazing to find out that in a country where there is constant rain for months at a time, families I interacted with had to dig deeper and deeper wells as the water table dropped from over-usage. There is no government plan to recharge the groundwater as well, such as cheap American/European-style rain gardens on road medians that have an added benefit of flood control. All that rainwater is just wasted, causing flooding then eventually flowing to the rivers and ocean.
Once again, a regressive tax. Even worse, a regressive tax that won’t easily be easily collected. Who in the Philippines even comes up with such terrible proposals?
I appreciate the difficulty of collecting government revenue for the Philippines due to many factors, namely: tax avoidance by the wealthy class and Filipino corporations, cash or informal barter prices among the average transactions, and an average Filipino’s feeling that even if they paid taxes they receive nothing in return. However, regressive taxes conveniently cover over the fact that the tax burden falls squarely on the lower and middle class since a VAT/sales tax is a consumption tax.
When the taxation regime relies on consumption taxes, average people cannot escape taxation except in the informal economy, while those with means, along with an army of CPAs and attorneys will laugh all the way to the bank. To think about it, ignoring the variation and quality of food and goods, all humans need the approximately same amount. The more poor a family is, the more they must spend their budget on food, transportation and goods, while those earning over a certain amount yearly usually pay much less than the official top rate PIT bracket of P2.41m + 35%.
It’s been a long observation of mine that one of the major roadblocks to why the Philippines didn’t develop a native export industry is because the family corporations that sell to the Filipino consumer are comfortable with their import-sell businesses, otherwise known as malls. Those rich enough can create convoluted structures of tax avoidance, most of it completely legal under Philippines law. VAT doesn’t affect these businesses at all, because beyond the excise tarffs paid at point of import, the majority of the tax burden falls upon the shoulders of the average Filipino family.
Make no mistake, Joe’s observation is exactly what TRAIN intended, which is shifting the burden of taxation from PIT over to higher consumption taxes. I didn’t agree with TRAIN at the time of enactment, because it was a faux-populist switcheroo touting lower PIT (which were previously not effectively collected anyway by BIR under RA 8424), largely to appease BPO workers. Well, listening to friends in the BPO industry, they only realized they are the one paying the price through VAT.
Keypoints: legal tax avoidance, ineffective BIR. But also stubbornly designing an unworkable system while ignoring experience gained elsewhere. France has been experimenting with tax for IT companies (https://www.bbc.com/news/business-48928782) and Europe is working on a tax system to follow. Why not wait to see how this pans out and improve on their system once enough experience is gained? When the present proposal has been “implemented”, it will be impossible to admit failure and replace it with something which has been proven elsewhere. A pity because using the European experience, you would have a simple system. And if the matter could be agreed in Asian cooperation, there could be a huge benefit. No way Google, FB, Tiktokkie etc could afford to lose this mass market. In my opinion, working a few years establishing an Asian implementation program would be well worth the wait. Going alone will result in chaos, indeed.
Just look to what happened with the increased landing rights for intercontinental flights. Once this was implemented, most airlines added a stopover so they could claim they were just a local Asian route and hence they did not have to pay the high landing fees. So, now there are stopovers in mainly China. And the tourists? Many switched to Thailand, Vietnam, Cambodia, Indonesia because there, they do not have this irritating stopover. So, the additional income is zero, the losses are significant. But the stopovers stay. The tourist industry is suffering. And what do we do to prevent having to admit failure? We implement a system where tourists are double & triple counted to show that we are doing fine. But, the fees stay and the tourists stay away.
Paul, good to see you but let’s not give the politicians something to obsess over *laugh*
I’ve only been loosely following the negotiations on Euro plans for digital taxation, but I think this Reuters article sums up the current state of affairs: https://www.reuters.com/markets/us-five-european-countries-extend-truce-over-digital-taxes-until-mid-2024-2024-02-15/
In short, negotiations have been kicked down the road once again due to threat of US tariffs of pullout of the companies providing those services. The Eurozone + UK countries have a massive combined GDP, and if they have given pause, then the Philippines with an economy that is a pittance in comparison should definitely take a moment to re-think as well.
I concur with Joe’s argument that there is no “value added,” and the corporations would just pass along the increased cost to the Filipino consumer if forced. Overall I think that the digital services, especially the “free” ones give much more benefits to the Philippines than any taxation could recoup. A major example is how almost all colleges and a many high schools have switched over to Google Classrooms which is now an integral part of the Filipino education system. Those schools pay nothing for the product because they’re on the free plan which covers all their education needs.
On the “original intent” of the digital taxation scheme, which is to collect VAT from online shops, I strongly agree with. Physical goods are the best argument for value-added, and currently China-based shops that open a “branch” in Makati or Batangas to skirt around Philippine law are importing a massive amount of goods, at impossibly low prices that is in effect dumping goods. It’s not fair for a local Filipino reseller to be subject to taxation while these shady Chinese companies who are the equivalent of POGOs but for goods to get away with not paying. Just like in the drug war, the government is willfully ignoring the main source of the problem and taking an easy road they think will make them look like heroes.
Y’know, Joey, that’s downright eloquent. I also like the VAT tax scheme as the primary source of government revenues. But the digital taxation scheme, man, technology is moving so fast into AI, I can’t imagine they will be able to keep pace. It’s bound to be a mess. The digital infrastructure is terrific. So let’s get the big providers pissed at the Philippines? I know where I’d NOT invest in a data center. I know where I’d up my prices.
Thank you for your kind words Joe, but these are just semi-coherent ramblings based on my direct experience and observation. My area of practice is IT, InfoSec, and the business applications of technology.
The Philippines is often the test bed for new technologies due to an English-competent population that has a high degree of connectivity. The country has also massively benefited from the digital revolution that connects families, online sellers, new possibilities. The taxation scheme is fixated on generating new revenues that seem easy to obtain, while being short-sighted on possible consequences. Even the countries with a digital services tax provided by the government to justify the position is laughable to me, since those countries have much more clout in negotiations than the Philippines. My biggest concern is the proposed taxation scheme would be akin to killing the golden goose to get the egg now.
It might be the left-wing argument in me as well, but I don’t agree with heavy regressive taxes. Undoubtedly some sales tax is necessary to regulate the flow of supply, but to depend on a sales tax for the main revenue is just outstandingly crazy to me because it shovels the burden onto working families while the rich once again laugh counting their money. There is a large amount of money on the table right now in PIT, if the laws for business deductions is reformed and the BIR hires competent, honest agents.
Yes indeed, Joey. Taxes require discipline, and a bit of fairness. Sneaky backdoor taxes that circle always back to the poor consumers are chaos, for sure. I knew the RE tax collector at an LGU in Mindanao. They collected about 25% of the property taxes they should have because landowners would toss the mayor out if he tried to collect them. The internet taxes may look good, sticking it to microsoft, but they will be wrenches tossed into the well-running internet machinery.
I appreciate the Philippines a lot, which is why I keep visiting. However, something that always struck me as a simple student of history is how the Philippines insisted copying outdated political and government systems that have long been abandoned in the US, even at the time of the Military Government.
There cannot be effective government without competent and dedicated apolitical bureaucrats supporting the Executive. Yet the Philippines keeps the padrino system, albeit in an informal basis in modern times. The US ditched political patronage following the Reconstruction and set up the modern bureaucracy, including the modern IRS and moving away from depending on US Customs tariff collection for revenue. Yet in the Philippines, often at the LGU level it’s “all in the family,” where the government agent is likely to be related to plenty of residents if not the local government officials. Books then get cooked at an official level.
There is a slogan in there somewhere. Cookin’ books. What LGUs do best.
https://joeam.com/2015/06/11/on-monetary-sovereignty-and-government-spending/
In my maiden article here at TSOH, I began to explore MMT, the fair tax amongst others.
I know you said you advocate for MMT, but methinks some naysayers are correct to go against it, but love to be proven wrong.
The fair tax long proposed bit impossible to implement anywhere. You shut down institutions.
I had the pleasure of reading your old article previously Karl!
I’m an advocate for MMT and against the Austrian school, which I believe has inflicted too much pain in Western countries due to the rabid reliance on austerity. However, in my understanding of MMT, it would only be applicable to countries where the currency is the primary or secondary global reserve (USD, Euro). This is due to the inherent trustworthiness of those currencies. Arguably the US “already” is doing a form of MMT, as seen in the constant fight between the Fed constraining more full employment vs allowing growth. I’m sure no economist thought the US Treasury would be able to handle more and more sovereign debt and not have any obvious effects.
In the Philippine context, MMT would probably be bad because governments with immature thinking would just use it as the new magic bullet to solve all the problems. That would cause increased inflation until the risk of hyperinflation would be very real. I just think there are many tried and true methods of increasing and expanding the Philippine economy than just printing more pesos (because after all, what country would buy sovereign promissory notes in pesos?).
One of the worst habits of Filipino politicians that I’ve observed is the unwillingness to confront problems. They would rather just pretend the problems didn’t exist, then when push comes to shove, they throw their hands in the air and want to start over again. This defeatist way of thinking can even permeate down into the general population’s consciousness. I’ve always believed that the authority under RA 8424 provided enough tools to at least move forward, but TRAIN was insisted as the magic elixir that would solve everything. Undoubtedly, TRAIN introduced a multitude of different problems while not solving prior problems it purported to fix.
The most fair way to implement taxes would be a progressive PIT, alongside a flat corporate tax with allowances for innovation deductions. The US also collects the healthcare taxes right out of every salary check as well, as that fund is sacrosanct and any politician who tried to take the money quickly committed political suicide. The key though is the US and most Western EU countries are very efficient in collecting PIT (and to a degree, corporate tax).
Again so eloquently written.
Thank you for your kind words Karl, but it’s just my personal ramblings. I’m so impressed with the insight and experience of all here, which surpasses my own.
I second the motion
Did you second yourself, Karl? 😅
The insight and experience of the regulars still ever ceases to amaze me. Now you amaze me.
I echo what other member of the society have said.
This is practically un enforceable.
This will drive most tech companies to be purely cloud without local representation.
This is unfocused. The original goal was trying to find a way to tax online sellers in platforms like Lazada, Shoppee, TikTok Shop. The way to do this is to enforce something like a withholding tax of 1 percent and not a VAT as it would be too draconian. Go against the online shops or use the eWallets.
Part of me thinks mall owners are lobbying for this.
there might be catch here, mall owners may well be digital service providers and may well be already feeling the vat pinch. though they could recoup their expenses and pass on some of that to customers, but without say so of dti, that’s unlikely.
mall owners who may also be digital service providers want to see fair playing field and are probly justified to see their competitors and foreign equivalent doing business here be vat-ed as well.
I remember when I believe it was NY state started charging sales tax. It was even dubbed the Amazon Law.
I wish the Senate/House were more wonky in discussing policy such as these. The estimates need to be available. (They usually can only be seen through accessing the official records but the full report should also be published if it exists).
We can’t make good policy without memory.
https://www.cbpp.org/research/new-yorks-amazon-law-an-important-tool-for-collecting-taxes-owed-on-internet-purchases
Amazon delivers books electronically to where, exactly? If it delivers a paper book to New York, or the Philippines, it can add the proper tax. Whatever New York wants. 12% VAT in the Philippines, and customs will add their 500 pesos. But if I fly to New Zealand and order an electronic book from there, they must change the price? Or if I set my VPN to Florida? The IRRs will be fun, for sure. The problem is, the Philippines does absolutely nothing to earn these taxes. Especially on cloud or other purely electronic services. Well there is electricity for the internet connection. But they already tax that. Same with wifi. Money for nothing, chicks for free. Digital tax slogan.
I thought amazon’s jeff bezos and bill gates of microsoft (before he went of the grid) earned billions and can certainly afford to pay tax.
amazons black friday delivery is often free of charge, prompting other companies to offer free delivery service as well, and customers dont get charged.
But why should Bill Gates pay Filipino’s taxes?
bill gates would be required to pay vat under the new proposed law only if his company is doing business here in the philippines, and provide digital services to subscribing filipinos. if he netted billions of fees from subscribing filipinos, he would be taxed.
though currently bill gates is no longer associated with microsoft, having relinquish his chairmanship.
“Value-added tax is added to a product at every point of the supply chain where value is added to it. Advocates claim that VATs raise government revenues without punishing the wealthy by charging them more through an income tax.” Investopedia
VAT is a way to make consumers pay taxes rather than corporations. That’s my point. It is a tax on Filipinos because the companies will pass the charge through to Filipinos or stop providing services here. A cost to Filipinos. The US views it as you do, an attempt to charge an income tax on its resident companies. No no no. The Philippines exercises its sovereign taxation right in the Philippines, not in the US. That was my original point, that the Philippines is invasive, like China. Nations that charge taxes on digital services have done exactly nothing to earn those taxes. It is pure greed, and a lack of respect for the value-creators. They are leeches sucking blood from the businesses that make the Philippines work.
a lot of taxes are passed on. adds to the cost of the goods. the consumers will end up paying for the tax. That is why some people are floating a wealth tax which would be immensely difficult to implement. A wealth tax was tried I believe in France and caused migration of their deca millionaires and up
I think they imagine all the money flying around and just want to grab it. Greed as pure as it gets. Consequences are irrelevant.
GC, I think you pulled the right thread here. It’s not a coincidence that the families and consortia that own the malls have had a stranglehold on the Philippine economy for far too long because they control the import licenses. They wouldn’t be happy with online shops at all taking away their sales.
However, there’s also the issue of dumping of Chinese goods and avoidance of tax obligations with online shops, especially the Chinese-owned shops (Shoppee, TikTok Shop, Temu). I occasionally need to use these services and the number of Chinese drop shippers with offices in Manila strip malls seem to vastly outnumber Filipino resellers.
Overall I think it’s bad economic policy to depend on regressive consumption taxes alone. That’s just stealing money from the poor at that point. The government needs to be serious about properly funding BIR and BOC, hiring an army of competent officials then accessing the tax law fairly. While doing this the government needs to find ways to increase the pool of PIT payers by having a sound agriculture and industrialization policy to provide new jobs.
there used to be jack ma founder of alibaba, very rich and has very strong internet sales presence but his criticism of chinese financial regulators caused him to lie low, the wealth of his business empire now halved.
so far, not much decibels can be heard from those mostly affected by the new vat soon to be made into law, mainly the digital foreign service providers. if they’re laughing and dont want to dignify recto’s puny attempt to squeeze money from them, they’re not saying. maybe there is language problem, lost in translation.
Jack Ma’s criticism of Chinese regulators was their shaky math, which he feared would soon cause the PRC economy to crash. He spoke out in patriotism to his country, yet he was muffled. And he’s right, because from my own observations over the years whenever I stop by in China is that the Chinese domestic market just can’t absorb production. The majority of the population is still relatively poor compared to the plutocrats sitting on the top, yet without guaranteeing salaries by construction and manufacturing, people will start to notice and rebel against the CCP. There are plenty of badly constructed infrastructure and real estate across China just to give the people a job, the so-called “ghost cities” which I’ve seen with my very eyes. Increasingly the situation is precarious, with real estate speculation replacing construction with culminated in several recent real estate crisis. Dumping cheap Chinese goods that are subsidized by the PRC is another sign. Magic math eventually collapses. In history we have seen that countries usually become nationalistic and outwardly belligerent when domestic issues start boiling, correlated by China’s rapidly increased belligerence under Xi.
The Philippine market is puny in comparison to other markets, for example the Eurozone + UK. For now my guess is foreign digital service providers are keeping their powder dry. Why make a big scene to give Recto’s hair-brained thinking a win when he’s probably going to fail anyway?
Sometimes it’s so depressing to think about how there are many other effective ways to generate continual wealth and national pride right there in the Philippines. The best way would be to fix agriculture once and for all, reform investment laws to attract foreign capital for “Made in Philippines” products, increase the amount of STEM graduates to manage the new industry, then over time develop native technologies/industries. Instead, almost every college student I interacted with is going into Tourism.
thanks, finance sec recto may have come midstream, and cannot undo the economic misgivings of the past (too hard basket!) but can do something today for tomorrow. hence apparently the vat, to raise much needed capital for infras spending. I really hope when it comes to actuation, said vat collected wont go the way of the coconut levy fund, gotten so much money no one can trace. lost in the system, got eaten by the system, no amount of head scratching can solve the money’s whereabouts.
Maybe BBM and Recto will be revealed as honest, even if misguided men. If they don’t steal the new revenue, undoubtedly another politician will come along to figure out a way to steal it. I wonder what it will take for the majority of Filipinos to stand up and say “no more!”
the 1 percent withholding tax is implemented. There is a table here of the countries that implement the DS tax.
https://www.vatcalc.com/philippines/philippines-vat-on-digital-services-non-residents-july-2023/#:~:text=The%20House%20of%20Representatives%20has,remitting%20the%20value%20added%20tax.
The table shown of countries that charge DST shows another display of our endless attempt to benchmark which often leads to an endless loop of: “If they can do it, why can’t we?”. They can and we can’t, why is that supposed to be a conundrum?
We also inherit stuff from the Spaniards and the Americans in terms of codification. Here’s looking at you Penal Code and the Constitution and laws.
In terms of innovation it lead to complacency and stagnancy.
First mover on the jeepney and decades later because of no continuous or even incremental improvement, we are now in a rush to modernization.
Our luddite behavior is partly or mostly to blame.
We were the first in maritime education, but the one ship per school never happened because they allowed the schools to mushroom.
Excellent point. Europe is fighting with US tech giants because they see unfair trading practices coming from the US. The Philippines USES US technology to run businesses and empower schools. So it wants to tax the companies that empower its competitiveness? And then wants them to build data centers here? I fail to see a cohesive technology strategy in the Philippines.
Here is an article describing the top tech companies in Europe. https://businesschief.eu/technology/top-10-technology-companies-in-europe
Top non-BPO tech companies in the Philippines are Globe and PLDT.
See the difference?
Almost on topic. If the author is correct, then Recto can not be trusted with decisions.
https://www.philstar.com/opinion/2024/08/09/2376524/after-philhealth-they-can-loot-sss-gsis-afp-pnp-savings
Terrifying to think. If the author is correct on his hunch, that would devastate the other funds that the individual payers have entrusted in the government. This seems to be part of the Maharlika plan.
Recto is also responsible for running Maharlika. When the Maharlika Wealth Fund was proposed, my Filipino friends who are largely Duterte/BBM supporters all thought it was a great idea, while I had reservations. The main problem is Maharlika gambles with the people’s money, while having no strong assets or revenue to grow the money.
Other sovereign wealth funds are based on the main extractive industry, i.e. petroleum or rare earths. The Philippines has none off that. There is no such thing as a free lunch. What will happen when the people’s deposits are mismanaged or used to hand out bribes?
it’s summat similar to the coconut levy fund. so much money collected and went horrifyingly kaput. coco farmers who were contributors and needed help with their livelihood could barely access the fund vs bureaucracy. some have given up hope, others have died while most have stopped asking to be given what was rightfully theirs.
Ha ha… somehow it circles back to the coconut joke. In the late 19th century, certain Latin-Caribbean nations were termed “banana republics,” due to their exploitation by foreign corporations while domestically they had a hacienda system run by plutocrats. Perhaps “coconut republic” will fit!
I cannot imagine this level of incompetence if only Leni and Kiko had won.
I cannot help thinking the same, if only leni and kiko . . .
And to go back in time… if only Mar and Leni. The Philippines wouldn’t need to deal with many of the problems that arose, and remain unattended to.
I have no idea what they are going to invest in that actually provides a cash return. Irrigation ditches? That’s a spending fund. I think it is a vehicle to send government money to friends. Not to earn money.
The more I watch the developments of the BBM administration, the more disappointed I feel. It’s as if their plan is to milk dry what money they can grab domestically while offloading defense obligations to the US and the new allies rather than being serious about building resilience in the economy and defense.
I share the concerns.
Well, foresight is something very un-Filipino.. This era reminds me of the 1970s when most people were OK with Marcos Sr. as the economy coasted along on the sound fundamentals those before him had laid down..
The same middle class that supported Marcos Sr. turned against him when things went South in the early 1980s, and Ninoy getting killed provided them with a symbolic figure to unite around. It might well be the same thing once the new middle class that doesn’t care about Ninoy or Cory gets into the same situation, though they might turn to Inday Sara and blame Marcos Jr., or if the opposition manages to get in power they could be again blamed for paying the debts incurred by predecessors, hey paying utang is even more un-Filipino than foresight..
After the raid of Land Bank and others to set up the “wealth” fund, Land Bank’s capital fell to unsafe levels. Now Phil Health reserves have been hit and Filipinos have even thinner health protections than when COVID struck. It’s like the nation’s social infrastructure is being hollowed out to fund things that enrich the entitled. The VAT on digital services is one more sleight of hand. Piling the load on the masses. Sara Duterte is already claiming the space as defender of the people. It’s a powerful position, even if it is fake.
Irineo, Joe, I’ve been hearing complaints recently about the latest American grant of $500m to assist in AFP modernization, driven by the Davao-nexus ramping up attacks complaining about the $100b Ukraine military aid (over 2 years) vs “what the Philippines got.” A lot of DDS apparently believe this bunk, even though Ukraine is in an active defensive war against Russia.
It makes me wonder what the Davao-nexus plans. Perhaps to antagonize the people’s minds so a possible future Sara admin can move closer to China. It’s irritating to see the politics of “what can I get, even if I don’t give anything in return.”
To agonize the people and posture Sara Duterte as the defender of the people. It’s a powerful approach in the vacuum that is the Pink opposition (tomorrow’s blog). My bookie has Sara winning in 2028.
I sure hope not. Sara Duterte would be bad news for the Philippines, not just in the exposed incompetence of the Duterte clan of running government, but that she would might as well soon sell Philippines sovereignty to the PRC.
sara has hits back at senate pres escudero that leaders should not be made to carry champagne glass as escudero was seen doing, holding champagne glass for 1st lady liza marcos. well, the leader of the catholic faith did worse and wash the feet of lepers and poor people alike, and then have the temerity to dry the feet and kiss them too.
The Davao clan truly believes themselves to be the new royalty of the Philippines. No humility at all, only bombast and violence.
they must still be seemingly livid. during duterte’s time as president, america and canada refused to sell firearms and ammunition to philippines for fear they would be used on civilians in the war against drugs. now, dabaw mob missed out again! 500millions US grant for afp modernisation not likely to land on their doorstep. its dispersal not for them to do as seen fit.
Generally American aid has the caveat of “respect your country’s laws and human rights,” and it entails oversight by the US Congress since it’s the American people’s money. The Ukrainians figured this part out fairly quickly, and set up a competent human rights attorney’s office, anti-corruption office, and office to oversee responsible usage of US largess. I had hoped Filipinos and Filipino lawmakers would see the benefit in at least paying lip service to US conditions for grants, but as usual there are bomb throwers who ridiculed the aid and asked “why not fighter jets, tanks, destroyers?” when one of the main reasons for incompetence and corruption in one’s job is being paid too low a salary. No wonder Duterte was willing to sell the country to the PRC, which has no such conditions but instead practices debt trap diplomacy.
Funny because they still sold trash and Duterte returned it to Canada.
I wrote an ebook on multi-currency accounting by banks. All I know is I get paid at the price I set less the % charged by whichever platform that made the sales. Lots of complicated tax stuff in the process that I know nothing about and need not know.
The main idea on digital services tax is of course to launch an offense to grab a pile of the money that’s out there. The defensive idea is digital vendors in Philippines are already collecting VAT for other countries.
Passing the legislation is one thing, and that too takes years. Implementation requires a registration regime. Mostly targeted are the larger corporations. Enforcement is practically impossible. B2C ordinary Filipino consumers bear the crunch. B2B Filipino business costs go up, ultimately end consumers suffer.
Several countries are already collecting Digital Services Tax on digital services – EU, Australia, India, Canada. Turkey, Mexico, Kenya, Indonesia, Brazil, Malaysia, Colombia, Argentina, UK.
Singapore passed legislation for GST on digital services in 2020. The implementation is a WIP.
The country that is feeling the defensive punch is the US since the digital giants are majority US-based. This has caused international tensions with US threatening some economic action like tariffs.
How successful are the countries that have imposed DST? Coming from a zero base, collection has of course been wildly successful. Hundreds and hundreds of millions of dollars per years has been collected by some of those countries that has implemented DST. Viola the motivation. It’s a high speed gravy train every government wants to get on board.
OECD is working on a broader more harmonised basis. When this is realised, most countries would abandon their DST and adopt this harmonised model. Coming this late, perhaps it makes more sense for the Philippines to hold their horses and wait for the OECD initiative.
chemp at al. , I don’t know anything about this VAT stuff. but i do remember i use to buy stuff on amazon and there was no tax, but now there is i dunno when that started precisely awhile back for sure. and I still buy stuff on amazon now it estimates the tax but I don’t know how thats paid. like the actual process, do they just mail a check to the city or county or state? i dunno. but overall I think In N Out is correct here. just end taxation across the board. all together. which brings us all back to Micha’s MMT. i miss Micha, can we bring her back, I think she’d add a lot to the discussion at hand. especially the MMT side.
In the first place I think calling it VAT is technically wrong. In VAT there is input and output tax. This is simply a tax on digital services. It is best called Digital Services Tax.
The digital services provider collects from end consumers, reports and pays to the relevant countries IRA monthly, quarterly or annually depending on the country’s regulations.
Much more accurate. Using correct language refocuses the debate. Do Filipinos benefit by having search services here? Shouldn’t Google be charging them for the services? Well, it does, by charging advertisers who raise prices to recapture the money. So the Philippines will merely overlay another layer of money that will go from Google to advertisers to consumers. For myself, I appreciate what Filipino oligarchs do for the Philippines, and I am in awe of Google. Politicians who don’t know how to create real wealth will get populist fictional digital wealth. And the Philippines will remain a struggling country heaping burdens on its people.
I think Micha is not really engaged in Philippine affairs and is more like anti-Pinoy blog writers, reciting complaints because building anything is so frustratingly illusive. Plus, editors sometimes have to make hard choices to craft their product. I’d rather cultivate followers and commenters who believe the Philippines is not on a closed path.
If I believed the Philippines was completely hopeless, I wouldn’t be here, but sometimes I do wonder why the Philippines does insist on learning things the hard way, and why Filipinos (including myself sometimes) insist on visiting Popeyes College of Hard Knocks, as in learning basic stuff like gravity by having an anvil fall on one’s head, or for instance barely anyone noticed that the recent floods in Metro Manila were probably far worse than Ondoy 2009, though that could be an example of frogs being slowly boiled in water..
And if I look at the new middle class, I wonder when they will realize that bad policies eat up the better life they worked their whole lives for. Why do Romanians who work outside their country realize that and mostly support good governance while Filipinos seem to scorn it?
Definitely there are also Romanians who have Ceausecu nostalgia, even Antonescu nostalgia, followers of populists like Basescu, those who believe that the anti-corruption people only PRETEND to be clean but aren’t, but in general I see they get stuff and want improvement.
I do like the drive towards constructive participation now as it brings in future-orientation, something a lot of us Filipinos lack, the masa being totally present-oriented while the academics (including myself) tend to be past-oriented, both seeing little perspective.
A realistic time frame makes the future orientation not too visionary, as I do believe what former German Chancellor Helmut Schmidt said that people with visions should get help. Focus on what can be built, not ideology, is another important aspect of the “new TSOH era.”
There is a major element of self-punishment, or “neglect with untoward outcomes.” Like flooding. I don’t believe there were any deaths in the Manila flooding. The region will flood again and again. Just as the wind blows, and if there are no casualties, the drainage through the streets, homes, businesses, and rivers is working just fine. I’ve accepted typhoons are a part of life here. You do your best, do the repairs, and get on with it. The Philippines is one good president removed from being a first class place.
You’re right. There are no reported deaths from the flooding. More issues that modern countries have, such as damage to property. Ruined cars, renovation expenses etc etc. Stuff happens to flood areas here as well.
I once discussed that self-punishment aspect on FB with someone and compared it to self-flagellation and self-crucifixion during Holy Week. But your positive scenario might be correct. I feel the new middle class has largely moved beyond its resentment for the old middle class after having vented it in Duterte times. It is just a feeling, of course. But I believe that if the opposition finds a way to talk to former DDS and the possibly growing ranks of disappointed Marcos voters, they have a fighting chance. They will have to adapt their strategy too beyond just having Paolo Roxas dancing budots, the dance that Duterte and Bong Revilla used in their respective campaigns. Would be a pity if the Philippines blows another chance.
Agree totally.
actually, in metro manila there has been surge of leptospirosis after the recent typhoon carina, the likely factor is dirty and contaminated flood water that stays for days before subsiding. people were told to avoid muddy areas and being in flood water where the germ leptospira abounds. deaths due to leptospirosis have been reported, last count was five. thankfully, there is enough supply of the antibiotic doxycycline. doh encouraged those exposed to the floodwater to take doxycycline as prophylaxis prior to getting sick.
good thing paolo roxas can dance, he knows his groves! if he will go for public office, he has to show he is well rounded kind of guy and can relate to both rich and poor, the haves and the have nots, and the inbetweens. his father was once trolled for not opening the car door to wife korina and was seen leaving before korina could get out of the car, and was seemingly labeled, uncaring.
those little niggly things that people picked up and magnify in socmed can be like wild fire and devastating, if not put out quickly.
@Irineo,
I told you many times here not to hit the Philippines too much, but others are indefensible and deserve calling out. But I know if you have given up on PH then you would not be here.
Ireneo, at around time stamp 31:30 in this video, Kamala Harris says the strongest kind of politics is coalition politics. similar to what you’re saying here. its like when some old Filipino showed me a frond stick broom tried to break the whole broom and said its impossible but he took out a single frond and easily broke one. same with the Roman fasces. i think this is common lesson old Filipinos tell young Filipinos with stick brooms. AB has to get together with CDE more venues of that, more brick and mortar places which i hope this whole VAT stuff will encourage. so whatever issues this VAT affects, in the end the principle the overarching principle to any solution brainstorming session should be how do we connect AB and CDE Filipinos. hence my bookstore commentary. because i think with Inday Sara’s China money, this will be her move. if you’re talking high falutin’ stuff, stuff that won’t really affect CDE folks you’ve already given 2028 to my beloved Inday Sara. you gotta focus on AB to CDE solutions, that’s the principle here.
Nice assessment. I think the OECD cannot provide a timetable because the US is not fully on board, so the Philippines is unlikely to defer. Thar’s gold in them thar eyeballs.
I am curious how this digital VAT will affect the social media access in PH (Though it will make me happy if it would tax the trolling, propaganda and fake news purveyors/businesses), the BPOs and the OFWs. Is Zuck going to get a bill for providing free Facebook access to any Filipino who have a smart phone? Are they going to pile on a digital tax on BPOs and Western Union? Of course we all know that when corporations get taxed, they pass it on to the consumers by raising prices or they leave the country for good.
I read recently that most of PH revenues are on a downward trend and the BPO tax and OFW remittance are the most stable ones (also the biggest contributors to the GDP). The legislature may need to study this proposed digital tax further because they might lose more than they think they could gain from it.
A while back, we took a European vacation. When we landed at Heathrow and picked our rental car, the clerk to us to hold on all our receipts because we can get a refund for all the VAT added to our purchases. Is this also the case in PH for tourists?
Good questions. My argument is going to be that Google should start charging for search services and watch the tops blow.
google probly know more about us than we know ourselves. google knew all our searches, where we are, where we live, what we are looking for and what our preferences are, and we give all our data to google freely and often with no 2nd thought. I would not be surprised if google collates data on all of us and then bombard us with ads. and without us really knowing, we are told what to buy, what to think, what to eat, what movies to see, what music to listen, places to visit, clothes to wear, trends to follow, candidates to vote, etc. and if google sells our data to 3rd parties, we are non the wiser. so if google starts charging us for using their search engine, we may as well ask google to pay us in exchange for our data given.
Oh, absolutely google knows you better than any human does, if you don’t turn off the data gathering functions. But they are not evil people. Just business people. They push ads that work, but it’s your choice not to poke. I only poke game videos that give me 50 coins. 🙂
JP thanks for reminding me about the sad fact that BPO taxes, PIT from BPO workers, and OFW remittance are the biggest contributors to the PH economy.
I have an idea about how PH can raise revenues: the multitude of tambay working-age family members of those BPO workers and OFW who sit at home, while a handful of family members are earning. I’ve run into countless situations where sadly a single family member was supporting an entire extended clan (in one egregious case, a single female OFW engineer supporting 20+ people for over 20 years). If jobs were available to those tambays, would they apply? Maybe, maybe not, but I have a hunch that quite a few will jump at an opportunity for a decent paying blue collar job, such as factory work which built the middle class of Western countries and now Asian countries. A tambay might make excuses if the available work was menial labor that was looked down upon, but a job with a good salary would bring pride, similar to being a seaman crew.
For this to work, it’s imperative to attract foreign investment. Now, FDI is extremely difficult due to the existing Constitution, and there have been some attempts of workarounds such as the PEZA zones that have delivered mixed results. What I’d propose is not strictly FDI, but rather foreign partnership to establish manufacturing zones. Since laughably or sadly there is a lack of industry in the Philippines, building out manufacturing zones could be anywhere, thus delivering economic benefits to the local economies of every major regional constituency. When each region’s economy improves, so does national cohesion and lowering of resentment towards “richer” regions.
All this can be taxed at the corporate and PIT rate, bringing in a new large revenue stream for the government. Filipino labor, even if paid at a higher salary than the prevailing rate set by Manila, is still cheaper than most countries, which provides an incentive for foreign manufacturing. I can already imagine manufacturing starting off in the basics such as “motor” and light automobile manufacturing, as well as small appliances, which over time once a solid manufacturing base is developed can branch into more advanced manufacturing.
I’ve blocked Chemrock for trolling. I don’t want distractions or his failure to respect this blog. If the blog is to rise from slumber to have any influence at all on the political contemplations that will soon have to be done in the Philippines, it cannot wander around serving as people’s grinding board.
Joe, did you block my bookstore comments too or just went away because it was attached in reply to chempo’s comment (MMT video i think)? thanks.
I removed them along with Chempo’s posting.
Paquiao cried double taxation when Duterte went after him. Eventually they made up but he had to wait for the Court of tax appeals decision. I think they gave him a pass.
PNoy’s bir commissioner kim henares allegedly went after pacyaw too, chasing tax on money earned from overseas bouts. if pacyaw can show receipts the has already paid tax in USA, kim henares wont tax him again here in philippines. but pacyaw was summat adamant that if henares wants receipts, she should ask USA for it. when henares dug in, pacyaw apparently sent boxes and boxes of receipts and expenditures going back 10yrs (?) when all henares wanted was the latest ‘year to date’ official receipts issued by US tax revenue office. eventually, pacyaw ended up paying tax patigi-tigi yata.
Thanks for reminding me of Kim Henares.
More on Data Centers. Japan’s NTT backed out because they wanted full control.
https://www.philstar.com/business/2024/08/12/2377117/european-fund-manager-eyes-stake-pldt-data-centers
Can’t blame them. It’s their money and their risk. Any mention of Japanese investment reminds me ruefully that President Aquino was trying to get more investments from Japan the day the Mamasapano coffins arrived. Trolls invariably trivialize it, and spin it backwards.
I thought the Congressmen like 100 percent ownership of utilities and others.
About the neediness. I guess we should include not requiring the presidents to visit calamity areas. If it is moral support that is needed, a recorded message can suffice.
Really don’t understand why someone would put a data center here. Majority of marginal cost in Data Centers -> electricity cost. We do not have cheap electricity. This would work if the business interest who also have interest in power generation like SMC MPIC and AC are the ones creating the demand for their other businesses.
Pangilnan is the one in the article.
a lot of these digital services providers are Irish entities. What they normally do is to license the IP then the entities in tax advantaged places sell the digital services. This allows tax treaties to take precedence and when no work is done locally by anyone locally then the Philippines in general doesn’t tax based on past experience.
Now if you have a data center in the Philippines and local service providers or entities of the digital services providers then they will have to pay. The entities selling the digital services through DBM-PS or bid for government projects also pay for VAT and other taxes.
This is why I think a local data center would not be enticing for foreign Digital Services Providers as it makes their administration more complicated. Basically does hiring people and building relationships locally worth enough for what they will earn here. This is even beyond the taxes. Most of these companies live and die on Churn and Acquisition Cost and Cost of Goods. Maybe COGS will be affected. but a higher cost of goods may make it not worth the effort.
sorry typed this in my phone while walking so sorry for the typos etc.