Legislative Updates

  

R.A. 8762 - An Act to lower the barriers to foreign investment in the retail sector. The goal of this law is to achieve a stimulating effect for economic growth. It also aims to create new job opportunities. Through more economic activity in the retail sector, the law is expected to give residents better access to more products and thus a better choice. In addition, the quality of the products and services on offer is expected to improve, and prices are expected to fall, as a result of the wider range of products on offer. To initiate this process, a comparison was made with other Asian countries and their respective guidelines, and adapted to the Philippines. Consequently, amongst others, the existing (financing/investment) requirements for foreign companies are to be lowered.

  

The Foreign Investment Act was passed in 1991 and amended in 1996. The Bill is currently discussed in the Bicameral Conference Committee of the Philippine Congress. The core of the amendment is that following a steady liberalization of foreign ownership and investment restrictions over the last decade, more industries shall be excluded from the so called “negative list” and/or a higher percentage of foreign ownership shall be allowed. Which of the restricted sectors may primarily benefit from the new regulations sill remains to be seen.

  

The Public Service Act of the Philippines is a law from the year 1936 which defines “public utilities” and regulates the corresponding “public services” (i.e. those services where specific regulations may apply due to a critical national interest in such services). Examples are:  Distribution of electricity, petroleum, water, sewerage, certain logistics, transportation and telecommunication services. Together with the above mentioned Foreign Investment Act, it effectively limits, amongst others, the investment/ownership of foreigners in certain business sectors that may concern the public at large. The core of the legislative reform is the ongoing discussion about a new definition of public services to generally open up various sectors for (foreign) investment. A liberalization of the transport, logistic and communication services is amongst those primarily discussed at the moment.

  

On 22 September 2021, the Philippine House of Representatives has passed the House Bill Nr. 7425, which is also often referred to as the “Digital Tax / VAT” Act. The legislation intends to impose 12 percent of  VAT on digital transactions (= sales of goods and services that can be delivered thought the internet). Apart of the additional source of income for the fiscal coffers of the Philippines placed under stress by the pandemic, the law intends to create a balanced playing field between domestic goods and service providers, and those doing business in the Philippines from outside the country though the internet. Examples of such commercial transactions are online licensing and software, mobile applications, music or video streaming services and other forms of provision of other digital content such as advertising, electronic marketplaces, search engine services, social networks, databases, digital hosting and online training. The law primarily targets the e-commers giants such as Netfilx, Spotify, Google, Facebook & Co. and shall exclude small businesses from the tax with the threshold currently discussed being set at around 3 Million PHP for the reporting and tax payment requirement. Exempted from the tax shall be, amongst others, the online distribution of books and other printed materials. The law was formally forwarded to the Philippine Senate and it remains to be seen whether it will smoothly pass the final hurdle before the President of the Philippines may sign the bill into law. Certainly it is noteworthy that despite the fact that it may still take considerable time until House and Senate may agree on a final wording, the Bureau of Internal Revenue initiated various working groups to discuss and prepare for such a digital tax.