Philippine industry movers react to proposed foreign tax law

As the Philippines looks to implement taxation on foreign digital currency service providers, the industry is witnessing mixed reactions from stakeholders. In September, Albay 2nd District Representative Joey Salceda filed a resolution directing legislative committees to explore policies from the Bangko Sentral ng Pilipinas (BSP) and the Securities and Exchange Commission (SEC) concerning digital currency exchanges. The proposal has sparked a debate about its potential impact on the local market, with concerns about transaction costs and investor confidence.

Salceda’s initiative sought to tax non-resident digital service providers, particularly foreign digital currency exchanges that are widely used by Filipino investors. He pointed out that this move could generate new government revenue, citing the “vague” laws surrounding digital currency exchanges in the country. Salceda also noted the growing number of unregistered foreign exchanges accessible to Filipinos, raising concerns about consumer protection.

Industry reactions: Impact on Filipino investors

For Filipino digital asset investors, the proposal to tax foreign digital currency exchanges, particularly through the imposition of value-added tax (VAT), could have far-reaching consequences. 

In an email interview with CoinGeek, Sharon Aytona, Chief Financial Officer at Moneybees, expressed cautious optimism about the potential taxation. 

“At Moneybees, we agree with the taxation of crypto service providers, as we are already paying our taxes. We believe that implementing proper taxation will help build trust in the crypto industry in the Philippines. It could encourage more investors to join the market, knowing that the industry adheres to legal standards.”

However, Aytona warned that tax rates must be reasonable to avoid discouraging investors. She emphasized the need for tax policies that do not burden Filipino traders or hinder the crypto industry’s growth. 

“If VAT is introduced on non-resident digital service providers, it could make some crypto services more expensive for Filipino investors. This might lead to higher transaction costs, which could discourage some people from investing in crypto. It’s important to ensure that any new taxes don’t make it too costly for Filipinos to benefit from the growing crypto market.”

Similarly, Arlone Abello, also known as Coach Miranda Miner, the Founding Chairman of the Innovative Movement of the Philippine Association of Crypto Traders (IMPACT), shared concerns over the potential impact on trading activity. He explained that foreign platforms would likely pass on the additional VAT burden to consumers, increasing transaction fees for services such as trading and withdrawals.

“This could make cryptocurrency investing less profitable, which could potentially discourage active trading and hinder the growth of the local crypto market,” Abello told CoinGeek. “The additional tax could be viewed as a barrier to entry, leading to reduced trading activity. However, people who are already heavily invested in crypto might still trade, and the core community may continue trading even with the additional costs.”

Regulating the industry

Abello said the Philippine government taxing digital currency platforms could be their move to formalize and regulate the industry. 

“By imposing VAT on digital exchanges, they could be aiming to create a fair playing field for both local and international platforms while ensuring proper tax contributions. This could boost investor confidence as it aligns the industry with national economic policies,” Abello added.

Enforcement challenges and transparency

While the proposed taxation on foreign exchanges is aimed at boosting transparency and compliance, there are concerns about the feasibility of enforcement. Both Aytona and Abello agree that government efforts to tax digital asset platforms could improve investor confidence, but only if the policies are properly enforced.

“We believe that government efforts to tax crypto platforms have the potential to encourage greater transparency within the industry by supplementing the compliance requirements for BSP-Supervised Financial Institutions. Clear tax guidelines can help build trust among investors, making them feel more secure when engaging with crypto services,” Aytona noted.

“However, we also understand that there may be challenges in enforcement, as monitoring all transactions and ensuring full compliance can be complex. We hope that the government continues to focus on creating fair and practical regulations that make it easier for both crypto platforms and investors to confidently participate in the market,” she added.

Abello, meanwhile, sees significant challenges ahead, particularly regarding foreign exchanges. 

“It will be challenging for the government to enforce VAT collection on nonresident cryptocurrency exchanges, especially those outside formal regulations. The government may need to work with international authorities or use blockchain’s transparency to track transactions,” he suggested.

There is also the possibility that increased regulation could push Filipino traders toward decentralized exchanges, which are more challenging to regulate and tax. Abello raised concerns about this shift, which may undermine the very goal of increased transparency. 

“They could also consider partnering with major platforms, but it could lead traders to move to decentralized platforms that are harder to regulate. The challenges in enforcement and shifts to unregulated platforms may negatively impact investor confidence,” he said.

The need for a balanced approach

To address these concerns, both industry leaders agree that the government must adopt a balanced approach to digital currency taxation that fosters growth while ensuring fair contributions from digital asset platforms. Aytona urged the government to collaborate with digital asset industry experts and stakeholders to develop tax policies that meet the needs of both businesses and investors.

“Moneybees believes that the government can take several steps to create a balanced tax policy. First, they should consult with experts and stakeholders in the crypto industry to understand their needs and challenges. Second, they could set reasonable tax rates that encourage growth without overwhelming businesses,” Aytona explained. She also called for clear tax guidelines and regular reviews to ensure that the tax policies remain fair and support innovation.

Abello echoed similar sentiments, proposing that the government offer tax incentives or breaks for digital asset startups and blockchain projects to stimulate growth in the sector. 

“The government can offer tax incentives or tax breaks for crypto startups or blockchain projects, particularly those in the early stages. This can promote growth in the industry and reduce financial burdens on businesses,” he said. 

“The government should also consider providing tax credits to companies investing in blockchain research and development (R&D) in areas like DeFi, tokenization, and secure data systems, which can encourage local innovation. Similarly, the government could offer tax exemptions or reduced rates for utility tokens that drive platform growth as this encourages businesses to develop practical and user-focused applications,” he added.

Abello also suggested a more nuanced tax structure based on the specific use of digital assets, such as payments, investments, or utility tokens, to avoid over-taxation of any particular sector.

Awaiting legislative hearings

As the Philippines moves toward formalizing its tax approach to digital currency, the outcome of the legislative hearings will be closely watched by both the industry and investors. Salceda’s resolution remains in its early stages, and the upcoming discussions could shape the future of digital asset regulation in the country.

Watch: Achieving financial inclusivity in the Philippines