VAT consequences of modern reading

"Many persons read and like fiction. It does not tax the intelligence and the intelligence of most of us can so ill afford taxation that we rightly welcome any reading matter which avoids this."

- Rose Macaulay

As the world advances into the electronic age, creating a paperless society, the demand for a more efficient and less costly medium of communication is considerably heightened. This is made evident by the insatiable craving that people have for new electronic gadgets such as tablets, smartphones, video game consoles, portable music players, GPS devices, and touchscreen computers that provide access to global connections at the convenience of one’s fingertips. More so, with the aid of the internet, communication traffic has crossed borders to revolutionize the social and commercial landscape. Increasing amounts of data are now transmitted and stored at higher speeds and bigger capacities.

Despite this reality, the Bureau of Internal Revenue (BIR) has consistently ruled that the sale and publication of electronically printed materials, such as electronic books (e-books), is subject to 12% value-added tax (VAT).

Under Sections 109(1)(R) and 116 of the Tax Code, the sale, importation, printing or publication of books and any newspaper, magazine, review or bulletin which appears at regular intervals with fixed prices for subscription and sale and which is not devoted principally to the publication of paid advertisements are exempt from VAT and the 3% percentage tax. While the Tax Code is silent on digitally published books, the BIR, through its administrative rulings, has interpreted the law to exclude electronic versions. Thus, the VAT exemption will not apply to digital or online publications.

Under previously issued BIR rulings issued as early as 1997, the term "book" for purposes of VAT exemption has been held to pertain only to printed or published materials in hard copy and does not apply to an electronic copy of any book or publication.

The BIR’s position is based on the principle that tax exemptions must be strictly construed against the taxpayer and liberally in favor of the taxing authority. Thus, for exemptions to apply, they must be clear and unequivocal. Any doubt as to whether an exemption applies must be resolved against the taxpayer.

In order to further disseminate its position on the matter, the BIR also issued Revenue Memorandum Circular No. 75-2012 which explicitly limited the terms "books" or similar publications (i.e., newspapers, magazines, reviews and bulletins) to printed materials in hard copies. It categorically excluded from the exemption all digital, electronic or online versions such as e-books, e-journals, electronic copies, online library sources, CDs and software.

Interestingly, in another circular (RMC No. 55-2013) this year, the BIR issued a reminder that persons who conduct business through online transactions are subject to the same registration, invoicing, tax filing and record retention requirements as traditional brick-and-mortar businesses. In other words, online business transactions would have the same tax treatment as the typical non-virtual transaction. The medium is disregarded.

Considering the bigger picture, the BIR has likewise embraced the advantages of the digital world in its operations. It has been recognized as one of the government agencies that transitioned vigorously to electronic transactions including electronic filing of documents and payments through its eFPS. Through its website, the BIR has allowed taxpayers convenient access to various online registrations, expanding the platform for public service. It continues to enhance its online systems moving towards comprehensive automation of tax administration. In fact, the BIR’s Reform Master Plan covering the period from 2013 to 2016 under Revenue Memorandum Order No. 29-2013 includes ongoing and proposed reform projects in support of its Framework for Information System among other emerging priorities. Soon, the BIR may have to contend with text materials which form part of its electronic systems and information libraries -- written resources that may pass as e-books or electronic copies of publications as well.

Tax exemptions must not be doled out indiscriminately. Nonetheless, with the fast-paced development of technology which has changed the way people communicate and the BIR being cognizant of this, one hopes that the bureau would reconsider its position on the tax treatment of digital books by taking a more comprehensive, or, dare I say, evolved perspective of the term "book", rather than its current limited definition.

Mr. Rabaja is a senior manager at the tax Services department of Isla Lipana & Co., the Philippine member firm of PricewaterhouseCoopers global network. Readers may send feedback via e-mail to revelino.r.rabaja@ph.pwc.com.

The views or opinions presented in this article are solely those of the author and do not necessarily represent those of Isla Lipana & Co. The firm will not accept any liability arising from such article.




source: Businessworld