Ricaforte, Paolo A.

2016400029

Taxation in the Digital Economy

Thanks to advancements in modern technology, people have created new ways of earning
income. The pandemic has made online interactions more necessary than ever before. From only
being a place that posted advertisements for businesses, to creating a business online, technology
has leaped far more than it has in the past decade. The question now is whether or not laws have
been able to keep up with the fast evolution of technology, especially with new innovations coming
out year after year.

First is the emergence of online “buy-and-sell” websites. This started out as online
classified ads used by people to sell their products online, such as through Sulit.com. Ever since
the pandemic, apps such as Grab, Shopee, Lazada, and FoodPanda has seen more use than what
has been expected. These are apps that allow vendors to sell their products through an app, and the
app will handle the delivery of the product for a cut of the profit. These apps have provided jobs
to lot of people.

With regards to taxation, the House of Representatives has recently approved on final
reading House Bill 7425, which is a proposal to impose a 12% value-added tax, or VAT, on digital
transactions. The Bureau of Internal Revenue also stated that the National Internal Revenue Code,
or NIRC, makes no distinction between businesses that are transacted physically or digitally.

Next is the sudden spread of cryptocurrency in the world. According to Kaspersky,

cryptocurrency is described to be a digital payment that does not rely on banks to verify
transactions. It is a peer-to-peer system that can enable anyone, anywhere to receive payments.
Instead of being physical money carried around and exchanged in the real world, cryptocurrency
payments exist purely as digital entries to an online database describing specific transactions.
When you transfer cryptocurrency funds, the transactions are recorded in a public ledger.
Cryptocurrency is stored in digital wallets. Currently, the most famous cryptocurrency in the
Philippines would be the Smooth Love Potion, or SLP, which they are able to obtain through
playing the game “Axie Infinity”.

Currently, many countries have started placing a tax on cryptocurrencies. The Philippines,
however, has lagged behind in the creation of laws to regulate such. The BIR has only expressed
interest in taxing cryptocurrencies, which caused an uproar in the Philippine cryptocurrency seen
last year. For this reason, we should take note of how other counties are handling cryptocurrencies.
Here are some of their different approaches on taxing cryptocurrency:

The US, Canada, has declared cryptocurrency as a capital asset, making it subject to capital
gains tax.

The United Kingdom, it depends on the transaction you are doing with your assets. If it is
seen as making an income, you have to pay income tax. If you’re seen as making a capital gain,
you would have to pay capital gains tax.

Australia also sees transactions with cryptocurrencies as either subject to capital gains tax
or income tax. They classify cryptocurrency not as money, but as property.

Germany taxes crypto as a private asset and not as property, making it subject to income
tax rather than capital gains tax. They only tax cryptocurrency if it was sold the same year it was
bought.

Portugal also offers no taxation on individual who profit from the trade of cryptocurrencies.
However, private companies who receive payment in the form of cryptocurrency will still be
subject to normal capital gains tax. This means that cryptocurrency is only taxable in Portugal if
you transact with it as a professional trader.

Switzerland classifies cryptocurrency as an asset rather than as legal tender. Private

investors do not have to pay for capital gains tax, only self-employed traders or businesses. These
are still subject to income tax, and sometimes wealth tax as well.

Singapore is wary of cryptocurrency. They know that innovation cannot be stopped, but
also that such things can bring about new methods of money laundering. As such, they passed the
Payment Services Act of 2019, which aims to prevent illegal activity, all the while trying to
cultivate an environment for cryptocurrency to flourish. Cryptocurrencies are exempt from capital
gains taxes, but are subject to tax on profit if the transaction is done by entities that buy and sell
digital tokens in the ordinary course of their business.

The Netherlands differ from most of these countries as it subjects cryptocurrency to wealth
tax rather than a capital gains tax or income tax.

Another new method of earning through the internet is in the form of “content creation”.
Content creators are what we call those who make content such as videos and pictures online
through different platforms such as twitch.tv or youtube.com. Their primary form of income
generation through this is donations or subscriptions. Viewers can send various amounts money in
order to interact with their favorite content creators. If they become big enough, they can even get
sponsorships from big corporations, allowing them to earn even more.

Last year, the Bureau of Internal Revenue, or BIR, reminded these content creators that
their activities are subject to tax. They were told that that they were subject to income tax,
percentage tax, or value added tax. Content creators are classified for tax purposes as self-
employed persons engaged in trade or business as sole proprietors.

Content creators are allowed to deduct all ordinary and necessary expenses paid during the
taxable year. These include development, management, operation and conduct of the trade,
business or exercise of profession, such as film expenses, computer equipment, subscription and
software licensing fees, internet and communication expenses, and office supplies.

Of course, with the oncome of new technology means new problems in terms of taxation.
Two of the problems of taxation in the digital economy are tracing and anonymity. Tracing is with
regards to finding where people are located. A lot of the internet has gone into protecting
themselves through the use of a virtual private network, or VPN services, in order to hide their IP
addresses. These VPNs have the ability to make it so if any site or program tries to trace you, it
would make it look like you are actually somewhere else. A person situated in the Philippines
could make it look like he is in the United States. This would make deciding who has jurisdiction
to tax a problem, since situs is one of factors on taxing a person.

With regards to anonymity, people online like to hide their identities in order to free
themselves from the problems that fame or infamy will bring. This also means that without the
cooperation of websites who monetize online activities, governments will have a hard time finding
out the identities of those who utilize their platform.

It is true that the Philippines’ laws still has a ways to go before it can catch up to rapid
evolution of technology. We’ve barely scratched the surface of one development, and a new one
will already be revealed. Taxation laws need a lot of updating in order that the state does not lose
out on revenue from the digital economy. This shows that there is a need for our lawmakers to take
initiative in drafting laws to address these problems.