Increase in income if VAT is imposed on digital services – IMF


EMERGING ECONOMIES, including the Philippines, could get a much needed increase in their income if they start collecting value added tax (VAT) from the digital economy, a study by the International Monetary Fund (IMF) has shown.

In an article titled “Digitization and Taxation in Asia” published Tuesday, IMF economists Andrew Hodge and Dinar Prihardini said that increasing digitization has raised new tax challenges for Asian countries, especially as their existing systems have been criticized for not taxing highly digitized companies.

“Extending value-added taxes to more effectively capture e-commerce and digital services could pay offFishort-term income and other efficiency gains. Capturing VAT on digitally supplied services and e-commerce supplied from abroad will help countries increase their income unilaterally. The consistent application of VAT on all digital imports also level the playing field between domestic and foreign suppliers, and between goods and services, thus improving effiefficiency, ”IMF economists said.

Countries like the Philippines, Indonesia and Vietnam could see their total VAT revenues increase if digital services are taxed.

“Estimates based on survey data suggest that charging VAT on remote digital services and certain goods to customers could directly increase total VAT revenue from 0.04% to 0.11% of domestic product gross (GDP) in Bangladesh, India, Indonesia, the Philippines, and Vietnam, ”IMF economists said.

IMF economists have noted that many Asian countries are making extra efforts on taxation to meet their revenue targets.

“Asia’s unparalleled level of Internet connectivity, which has supported the digitization of the economy beyond the ICT sector, creates enormous scope for future growth,” they said.

However, IMF economists have warned that unilateral taxes on digital services could also have repercussions.

“Taxes on digital services are simpler in design and implementation than corporate income tax initiatives, but risk introducing distortions of double taxation and commercial retaliation,” they said. .

IMF economists have noted that U.S. multinational corporations (MNEs) would be the main taxpayers of digital services tax regimes. This given that 25% of the profits made by foreign multinationals are made by those based in the United States.

In this scenario, potential retaliatory trade measures could be a possibility once taxes on digital services are imposed, the IMF said.

“For countries such as Bangladesh, India, Indonesia, the Philippines, Singapore and Vietnam, US multinationals dominate, accounting for more than 50% of the profits made by foreign multinationals,” he said. .

In the Philippines, House Bill 7425 proposed a 12% VAT on digital services, especially those offby tech giants like Facebook, Netflix, Inc., Alibaba’s Lazada, and Alphabet’s Google. The measure was approved by the House Ways and Means Committee in July of last year.

According to estimates by the Ministry of Finance, the measure could generate 10.66 billion pesos in annual revenue for the government.

“The pandemic and associated foreclosure measures are accelerating the development of digital economic activity, including transactions and sales of digital goods and services. This trend would likely affect future income potential, ”the IMF said. – Luz Wendy T. Noble

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