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Philippines Tax Collectors Push For Changes To E-Commerce Law

Mary Swire, Tax-news.com, Hong Kong

15 January 2001

With governments around the world debating the hot potato that is e-commerce taxation, the latest to join deliberations is the Philippine Revenue Agency, which is agonising over the issue of how to levy a tax on business deals where the two contracting parties claim they are operating in "cyberspace" and yet they have a physical presence inside a country.

The Philippines government, like many others, is concerned that the Internet constitutes a form of tax evasion. The Bureau of Internal Revenue is said to be in turmoil over the issue, as the Philippine's e-commerce law does not have an explicit provision on the subject. The e-commerce law was only passed in June 2000, following criticism of the Philippines in the wake of the ILOVEYOU virus fiasco, which spread worldwide and was shown to have originated in the Philippines.

Section 23 of the e-commerce law considers the business addresses of two parties as the origins of an electronic data message. It does not say anything though, about what happens if the parties involved mutually deny they entered into a transaction inside the country. Under the rules of the law, tax can only be imposed if a transaction was "consummated" on Philippine soil. The government is worried that a company could argue that it purchased a product through a website that was based overseas even though as a buyer it was physically located in the Philippines.

Regional Director of the Bureau of Internal Revenue, Antonio Ortega, said: 'We simply cannot allow this to happen. The government will be deprived of the income it would earn from these transactions'.

So, the tax enforcement body wants to see a hasty amendment to the law by which tax will be levied on a sale made regardless of where the transaction took place, provided one or both companies are based in the Philippines. Like other national tax bodies, unable to see more than a few millimetres beyond the end of its nose, it doesn't seem to have noticed that its clients are a lot more mobile and transportable than is the tax office.

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