By Kenneth Christiane L. Basilio, Reporter
THE GOVERNMENT is likely to run into difficulty in trying to apply a digital-services value-added tax (VAT) to cryptocurrency traders, analysts said.
While acknowledging that the upcoming law could plausibly apply to crypto-related services, the analysts said the overseas crypto exchanges that comply with the law could simply pass on the cost of VAT to their users, raising the transaction cost and discouraging frequent trading.
Arlone Abello, executive director of Philippines Association of Crypto Traders, also warned in an e-mail that the impact of the tax on crypto trading could make optimistic tax revenue projections fail to materialize.
“Since VAT is typically passed on to consumers, traders may experience an increase in the cost of their transactions, as platforms adjust their pricing to accommodate the tax,” he said.
The tax on cryptocurrency transactions could steer users away from “compliant” exchanges registered with the government to skirt additional costs, Enrico P. Villanueva, a senior lecturer at the University of the Philippines Los Baños Economics Department, said in an X message.
“These can be double whammy for Filipino cryptocurrency users who will either be taxed heavily if they transact locally, or risk losing regulatory protection if they shift to unregistered platforms,” he said.
It could even lead to the Philippines “losing its competitive edge as a hub for fintech” if other countries provide favorable tax regimes to foreign cryptocurrency service providers, Mr. Abello said.
“Enforcing VAT collection on nonresident cryptocurrency exchanges will be challenging, especially with platforms that operate outside of formal regulatory frameworks,” he added. “The government may need to collaborate with international authorities or leverage blockchain’s inherent transparency to track transactions more effectively.”
Albay Rep. Jose Ma. Clemente S. Salceda has said that the National Government (NG) could earn up to P6 billion in VAT annually from taxing foreign cryptocurrency platforms.
He was speaking ahead of the expected signing this month of a measure imposing a 12% VAT on digital services by companies based outside the Philippines.
Mr. Salceda, however, cited the need to clarify whether the government can collect VAT on trading commissions or total transaction value.
“It is a digital product provided by non-resident service providers to Philippine residents. So, it should be covered by VAT,” he told BusinessWorld via Viber.
“Right now, the revenue gain could be as much as P6 billion, depending on the framework that we will use,” he added. “The main contention is whether the revenue is the service provided – and therefore, only commission is VATable – or the revenue is the whole transaction value.”
Mr. Salceda last week filed a resolution seeking hearings on the possibility of collecting digital VAT from cryptocurrency service providers based overseas. The House ways and means committee is also looking at possible additional fees that could be charged by the Securities and Exchange Commission (SEC), with discussions on the matter set in November.
“Nonresident exchanges focused on cryptocurrency may be subjected to VAT on the transaction fees they are charging users,” Jomel N. Manaig, a junior partner at tax and corporate law firm Du-Baladad and Associates, said in an e-mail.
The government has a “potent weapon” against cryptocurrency exchanges with questionable track records, Mr. Manaig said, citing regulators’ ability to block Philippine access to their platforms.
Nevertheless, the government should “actively understand cryptocurrency” before drafting regulations, he said. “Simply making rules to regulate cryptocurrency based on current — and often outdated — standards and systems would inevitably lead to loopholes and unreasonable compliance requirements.”
About 11 million Filipinos own cryptocurrency assets valued at P35 billion, with transaction value estimated at P106 billion, according to House Resolution No. 2029, which Mr. Salceda filed last week.
Mr. Salceda said the House committee is also working with the SEC to formulate a “policy framework” that would allow cryptocurrency platforms to operate in the Philippines while also providing Filipinos with regulatory protection.
“While it is impossible to fully onboard all cryptocurrency platforms into the Philippine regulatory ambit, consumers have some guarantee that their hard-earned assets are protected by Philippine law for platforms that choose to be regulated,” he added.
