The Philippine government’s plan to impose a digital services value-added tax (VAT) on cryptocurrency transactions is facing scrutiny from industry experts, who warn that such a move could complicate the tax landscape and discourage trading. As the government eyes substantial tax revenues from foreign crypto platforms, analysts are expressing doubts over its feasibility and potential impact on local users.
The proposed 12% VAT law, which aims to target digital services provided by non-resident companies, is set to cover cryptocurrency-related services as well. However, according to Arlone Abello, executive director of the Philippines Association of Crypto Traders, the tax could have unintended consequences for both traders and the government.
“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,” Abello explained in an email. He also raised concerns that optimistic tax revenue projections might fall short if traders are dissuaded by higher costs.
The added costs, he suggested, could drive users away from compliant exchanges registered with the government, leading them to unregulated platforms abroad. This would result in higher risks for Filipino traders, noted Enrico P. Villanueva, a senior lecturer at the University of the Philippines Los Baños Economics Department.
“These can be a 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,” Villanueva warned in an X message. He further highlighted the risk of the Philippines losing its competitive edge as a fintech hub if neighboring countries offer more favorable tax regimes for crypto services.
Abello echoed this sentiment, adding that enforcing VAT collection on non-resident cryptocurrency exchanges will be a significant challenge, especially with platforms operating outside formal regulatory frameworks. “The government may need to collaborate with international authorities or leverage blockchain’s inherent transparency to track transactions more effectively,” he added.
The proposed VAT on cryptocurrency transactions comes amid expectations that the National Government could earn up to ₱6 billion annually from taxing foreign platforms, according to Albay Representative Jose Ma. Clemente S. Salceda. Speaking ahead of the anticipated signing of the law this month, Salceda pointed out that while the tax is expected to cover digital products provided by non-resident service providers, there remains uncertainty regarding how the tax will be applied.
“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,” Salceda said in a message to BusinessWorld. He added that a resolution has been filed to hold hearings on the matter, with discussions set for November.
Jomel N. Manaig, a junior partner at DuBaladad and Associates, believes the government possesses a “potent weapon” against cryptocurrency exchanges with questionable practices, noting regulators’ ability to block access to platforms that fail to comply. However, he cautioned that the government should deepen its understanding of cryptocurrency before drafting regulations, warning that outdated standards could lead to loopholes and compliance challenges.
At the heart of the debate lies the booming cryptocurrency market in the Philippines, where around 11 million Filipinos reportedly own crypto assets valued at ₱35 billion. House Resolution No. 2029, filed last week by Salceda, estimates the country’s cryptocurrency transaction value at ₱106 billion.
Salceda emphasized that the House committee is collaborating with the Securities and Exchange Commission (SEC) to develop a policy framework that would allow crypto platforms to operate while ensuring regulatory protection for Filipino consumers. “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 stated.
As the Philippines grapples with balancing regulation and innovation in the cryptocurrency space, the proposed VAT law could significantly shape the country’s digital economy, with far-reaching implications for traders, exchanges, and the government.
