The “complex and multifaceted” nature of the digital economy creates tax issues, according to a study published by state think tank Philippine Institute for Development Studies (PIDS).
Former PIDS Research Fellow Janet Cuenca, in her paper titled “Emerging Tax Issues in the Digital Economy,” said that the digital economy has changed the process of producing and marketing goods and services across borders.
“It significantly relies on intangibles, the massive use of data, and the pervasive adoption of multi-sided business models,” she added.
Cuenca likewise underscored that the taxation of intangibles constitutes an immense challenge to policymakers as the current international tax framework is designed for “brick and mortar” businesses or “companies that have a physical presence or permanent establishment that is used to assign tax jurisdiction.”
According to her, new business models do not require physical presence, thus, companies can easily cut across borders to earn significant profits while having opportunities for tax avoidance.
Meanwhile, an Asia-Pacific Economic Cooperation report identified some barriers and challenges confronting the Philippines in taxing the digital economy.
Among the issues is the scoping and measurement of the digital economy. The country lacks official industry data that measure the contribution of digital trade to the economy’s economic growth.
While the Philippine Statistics Authority has started to measure the digital economy’s contribution, the report revealed that there is still a lack of statistics that could explicitly measure the digital economy.
The report also said that there is also no single standard definition of digital trade. Further, new business models “do not exactly fit” the traditional sectoral classifications.
The report also said that another barrier is the regulatory and legal framework that inhibits businesses “to explore and invest in more digital technology solutions.”
The study also pointed out some digital infrastructure challenges related to Internet availability, affordability, quality, and reliance. For instance, the country ranks low in the Asia-Pacific region in terms of internet speed.
