E-commerce Taxation: Who Gains?

In a paper written by Peter Lee U entitled Towards a National Tax Policy for E-Commerce (2006), he mentioned that the United States has been campaigning in international fora not to tax e-commerce (or not to impose taxes in addition to conventional taxes). Apparently, there was a 1998 World Trade Organization (WTO) paper which found that 85 percent of internet revenue was generated by the US while only 62 percent of the users are located there. It is in the US’ best interest that other countries would not tax internet transactions.

Is it in the Philippines’ best interest to impose taxes on internet transactions? Since the Philippines is a “net importer” of e-commerce, taxation becomes a viable regulatory response for policymakers.

I think it is misleading to say that e-commerce transactions is currently not taxed. Theoretically, physical goods transacted through the net would still pass through our administrative authorities thereby making possible of tax at the border. In theory, business establishments risk penalties (administrative and criminal) if it is discovered on audit that they did not declare income from their internet transactions.

The question therefore is: should we add more? In my view, there is no impetus for imposing additional and more elaborate e-commerce taxation. One of the principles of a sound tax system is precisely administrative feasibility. Owing to the difficulties in identifying the persons to be taxed and situs for tax purposes, the current system is already fraught with selective implementation due to wide administrative discretion of the BIR. This kind of selectivity in my view, is of a proportion as would amount to violation of the equal protection clause.

What if in the future a more sophisticated way is discovered to address administrative problems? If it happens, my answer would be the same. Incentives for not imposing additional taxes remain. Filipinos are only beginning to discover the potentials of e-commerce. Additional taxation may pose obstacles to maximizing internet use in their business.

In addition, retaliatory taxes from other taxing jurisdictions are a likely possibility. These retaliatory taxes could hinder growth of our local businesses as their ability to penetrate foreign markets is constricted.

In crafting a National Tax Policy on E-commerce, it is my hope that the government would not only look at the short term benefits but also the long term repercussions of such policy. Sure we need more revenues, but at what or whose expense?

Entry No. 10

Bryan San Juan