ANC MARKET EDGE INTERVIEW OF SENATOR WIN GATCHALIAN WITH MIMI ONG REGARDING VAT ON DIGITAL TRANSACTIONS AND MAHARLIKA INVESTMENT FUND BILL

ON VAT ON DIGITAL SERVICES

Q: What's the latest on the proposal to impose a 12% VAT on digital transactions? Are you going to be starting to tax them this year?

SEN. WIN: Well, Mimi, this is not a new imposition, the 12% VAT is being imposed on physical goods right now in our country. So if you buy anything in shopping malls or even domestic online marketplaces, you have to pay 12% VAT, so it's not a new imposition. So what we're doing right now is to plug the gaps with digital services providers. So for example, websites like Netflix or Amazon data centers, which are hosted outside of the Philippines are not being imposed 12% VAT because our law does not require it. And so this proposal is to plug the gaps so that digital service providers outside of the Philippines will be mandated to also pay VAT on their services that they provide here in the Philippines.

Q: And you're looking to raise some P97 billion from this, right?

SEN. WIN: It's about P17 billion per year on average, P97 for the next five years. So it will gradually increase because a lot of these digital service providers will be mandated to register. The first step is to register. So all of these websites will have to register in the Philippines. And after registering, VAT will be imputed in their retail costs to consumers here in the Philippines.

Q: Do we have the tools to track them? To size them up and to collect from them?

SEN. WIN: That's a very good question. In fact, we discussed that during the hearing. Theoretically, yes, we have. The recourse for these websites if for example, these websites will not register or these websites will fail to collect VAT, the recourse for the BIR is to close down the website. Based on the information from the DICT, they have the tools to do so. But they have to review whether those tools are readily implementable and can be implemented on a global scale. If you remember, the DICT has the capability of shutting down domestic websites. So in theory, they have that capability. But we are now talking about global websites, we're talking about huge FinTech companies of the world. So they still have to get back to us in terms of that capability. It's also worth noting that in the 11 ASEAN countries, seven have already imposed VAT on digital service transactions. So in other words, we're the minority. We're one of the five who do not impose VAT on digital service transactions. So in other words, the whole world is moving into this direction. All of the OECD countries have this type of imposition. So we're actually in the minority. And we're actually the last few countries who are not imposing VAT on digital service transactions.

Q: Actually, Senator, you mentioned the OECD. They're calling it the pillar one right, the digital services tax. I understand it's not yet final because there are countries like the US who are opposed to this because it has taken a hit to Silicon Valley companies that are based in the US.

SEN. WIN: The OECD has actually provided guidelines and toolkits for countries to impose. So what they want is to impose this uniformly across different jurisdictions as much as possible. Of course, it's not going to be 100% uniform because we have different rates, different impositions. But as far as practicable, they recommend to implement it as uniformly as possible, so that multinational companies will not have problems implementing this or will not have arbitrage in terms of tax rates. So admittedly some countries are still looking into imposing this but the majority, especially here in ASEAN, majority of the countries have already imposed VAT on digital transactions, majority of OECD countries have already enforced VAT on digital service transactions.

Q: Senator, I'm very curious. We're talking about all websites that cater to Filipinos that we want to tax these websites. Do you really think that DICT can do this? I mean, there's so many of them. All over the world.

SEN. WIN: Like I said, the first step will be registering. It's a self imposition, the first step because the country now mandates these types of websites to register with the BIR and impose VAT and at the same remit that VAT to the BIR. But we have a 3 million threshold. So those websites that are just doing one of the transactions are not required to register, small and micro businesses whose transaction is below P3 million are not required to register. So we're just looking at the big regular websites who do this for a living. For example, like I mentioned, Netflix, Amazon, data services, and YouTube is a big online advertiser. YouTube is also competing with our local advertising agencies, but our local advertising agency pays VAT, 12% VAT, but YouTube does not because of the gap in the law. So we're just evening out the playing field so that these companies operate in the same plane.

Q: And for these companies who are doing their operations maybe in the US, but are selling goods or services here in the Philippines, would this be double taxation for them?

SEN.WIN: No, because for example, if you order from Amazon, Amazon has so many services. They have data services, they have digital services, they have products, online products, those online products, if it goes beyond P10,000 you add VAT once the products come here in the Philippines, and they are at the customs jurisdiction. So in other words, for online products, we already pay 12% VAT. It's the digital services that are not being imposed a 12% VAT. In other words, everything in the Philippines, whether services or products are being imposed 12 percent VAT. It's only this gap in the law that we are plugging.

Q: Senator, are you not worried that this could cause friction with our trading allies? I mean, I remember two years ago, then President Donald Trump when France imposed the same digital services taxes on Silicon Valley companies what Trump did was impose taxes on additional tariffs on French wine, French cheese for example.

SEN.WIN: No, it's just evening out the playing field. If it were our local companies, for example, iWantTV of ABS-CBN. If they sell their Filipino movies, let's say to Singapore, Malaysia, it's already being imposed VAT or GST in their jurisdictions. So Filipino companies here who sell services, digital services to another jurisdiction is being imposed GST or VAT already. So everyone's doing the same. So we're just moving our country to the same level because VAT is a global best practice that's being imposed both for physical services, physical goods and digital transactions.

Q: So we're working more on uniform tax regimes in ASEAN. Are there also efforts senator to be uniform with the bigger economy, the bigger global economy like the Western countries?

SEN. WIN: I think making our tax rates uniform is still a long way to go. Looking at the last GST tax rate, it varies from 5% all the way to 17%. So it's different per jurisdiction. Of course, it's a political decision on the part of the country. So we're still far away from coming up with a single or a uniform. That's what we're trying to put as uniform is the process and the principle of imposing VAT on digital service transactions.

Q: So what's the timeline senator, so you've done the hearing what's next? How soon before this gets passed?

SEN. WIN: The lower house has already approved this bill so it has been transmitted to us, I think early part of this year. So the next step will be, we're entering a technical working group to iron out a lot of the details. Of course what we want is clarity in the law that we will produce, and we're trying to shoot a completion of this bill by the end of the year.

ON MAHARLIKA INVESTMENT FUND BILL

Q: All right. And final question, Sir, done and dusted the Maharlika Investment Fund. Now just waiting for the President's signature, but so many questions remain. Any thoughts? How can we make this work?

SEN. WIN: The questions will always be there, because there are different opinions. If you talk to different investment bankers, if you talk to different economists, they will have different opinions on the different principles of the Maharlika Investment Fund that will never go away. What's important right now is we have the law and the law has imposed so many safeguards. From the early version of this law to the final version of this law, if you look at the safeguards, for example, in the Senate, we will remove the exemption from the procurement law. We removed the exemption from the GCG law. We explicitly prohibited investment in government run pension funds. The government structure has also been improved under the Senate version. So there's so many restrictions and safeguards in this Maharlika, the new Senate version, at least of Maharlika investment fund. So what we need to do is to make sure that the President and the administration appoints qualified and honest management of these funds. It will boil down now to the personalities who will be managing and running this fund.

Q: All of them are going to be Malacañang appointees?

SEN. WIN: Not all, they'll be independent directors, they'll be independent members. So they will be appointees because by law, they have to be appointed by someone but the qualifications and their backgrounds will be very important. And that's specified under the law.

Q: And I know, sir, that you've always said that the purpose of the Maharlika fund is very clear. There are still some observers who say that this fund sounds like it's everything and everywhere all at once.

SEN. WIN: Well, again, different people will have different opinions. When we were discussing this bill, we narrowed down and clarified the objective of the bill. Of course, when you talk to some people, they'll say it's too broad, but I think what is important here is the discussion during the debates and the intention of the bill. The intention is very clear, to use the fund as a catalyst to invest in infrastructure, as a catalyst to invest in nation development. And that is the intention of the bill. It's reflected in the declaration of policy, it's reflected in the debates. And we're quite confident that the direction is designed for this fund is quite clear.