BIR to boost int’l tax collection

By Alden M. Monzon @AldenMonzonINQ

February 23, 2023

The Bureau of Internal Revenue (BIR) is looking to create a separate unit to focus on international tax collection, including onshore transactions of global e-commerce firms, to plug billions of pesos of estimated tax leakage.

BIR Commissioner Romeo Lumagui Jr. told reporters on Wednesday that they aimed to create such new tax arm within the year or the next.

"We are studying on how to do this—if it [will be] an entire service or division and [what will be] the functions," Lumagui said on the sidelines of the general membership meeting of the Financial Executives Institute of the Philippines at the New World Hotel in Makati.

"We might have some limitations because we need to create plantilla items. So, again, that will have to be brought up to the [Department of Budget and Management] for approval," he said.

Lumagui said that a lot of international transactions were existing today, highlighting the need to create an arm focused on collecting taxes from these dealings.

"We need to establish a strong international tax practice that will look into the transfer pricing and the base erosion and profit shifting. So, that is why we really need this," he said.

Foregone revenues

The tax commissioner estimated that the government was incurring billions of pesos, at the very least, in foregone revenues from international transactions.

"It's a concern not just for the Philippines but for the world as well," he said further.

According to a policy note by state-owned think tank Philippine Institute for Development Studies, the digital economy has been growing unprecedentedly but taxing digital transactions remains a challenge for the government. The PIDS attributes the difficulty to the content and structure of the Philippines' taxation laws.

PIDS policy proposal

PIDS proposed four policy recommendations to address the issue, with the first one calling for the optimization of existing tax authority over platforms—a move which includes deputizing platforms or payment systems as withholding agents of the income of online sellers or the value-added tax from users.

PIDS also proposed the establishment of digital-ready tax administration, the expansion of the scope for investigation and liability, and increasing international engagements. INQ