Government Urged To Use Online Payments For Digital Tax Administration

The Philippine Institute for Development Studies (PIDS) released a study urging the government to pass a law that will include online platforms and payment systems as a channel to regulate taxes in the digital economy.

The study, “Rethinking Taxation in the Digital Economy” authored by University of the Philippines College of Law assistant professor Emerson Bañez explained that taxation in the digital economy is difficult because tax jurisdiction has traditionally been based on physical presence.

“National tax systems are straining to revenue from businesses in the digital economy. This is due to the fact that these businesses are characterized by the complexity of transactions, the absence of physical presence, and strong dependence on intangible assets,” Bañez explained.

The PIDS study said Congress could update its current toolset for tax administration and pass legislation that would require online platforms and payment systems to act as withholding agents of the income of online sellers or the value-added tax due from users.

Additionally, it would require payment portals to provide data needed to determine the tax liability of related actors and transactions.

“Concentrating on these key participants can allow tax administration efforts to scale since each of these centralized nodes can provide information and control over a significant number of users,” the PIDS study recommended.

The PIDS study also said the Bureau of Internal Revenue needs to prepare for digital tax administration to verify compliance with the withholding and remittance functions, as well as in validating and processing voluminous data sets.

It also mentioned the need to expand the scope for investigation and liability, as well as to engage at the international level.

“The Philippines should continue to explore multilateral options for reallocating taxing rights and addressing base erosion and profit shifting. These include regional tax treaties and the OECD (Organization for Economic Cooperation and Development) framework treaty,” the PIDS study said.

“Efforts at negotiating and crafting the provisions should consider the Philippines’ trading power relative to other countries and its comparative ability to exercise jurisdiction,” it added.

Source: Philstar