PHL digital economy expected to sustain growth momentum

The Philippine digital economy is expected to maintain its growth trajectory, driven by e-commerce and the continued development of digital infrastructure.

The e-Conomy SEA report by Google, Temasek Holdings and Bain & Co. found that the Philippine digital economy is projected to grow 20% to $31 billion in terms of gross merchandise value (GMV), making it the fastest-growing digital economy in Southeast Asia.

The report also reiterated earlier market-size forecasts for the Philippines of $80 billion and $150 billion in GMV growth by 2030.

E-commerce will be the main driver for digital economy growth, with the segment projected to post $21 billion in GMV this year, up 23%.

Transport and food are expected to deliver $3 billion worth of GMV this year; while online media and online travel were valued at $4 billion and $3 billion, respectively.

“The increase in digital payment volumes is compelling service providers to maintain competitive fees while enhancing security and service reliability,” it said.

Digital payments are projected to post 22% growth in 2024 to $125 billion in gross transaction value (GTV). By 2030, digital payments are projected at between $200 billion and $300 billion in GTV.

GTV for digital payments includes the value of credit, debit, prepaid card, account-to-account, and e-wallet transactions, according to the report.

Google, the Singapore state investment company Temasek, and consulting firm Bain added that the surge in digital payments in the Philippines is keeping fees competitive while forcing providers to enhance security and service reliability.

“As the digital payments landscape matures and adoption becomes more widespread, e-wallet providers are increasing merchant discount rates,” according to the report.

The expansion of Philippine digital infrastructure is also expected to contribute to the overall digital economy’s growth, with broadband poised to connect even in remote areas.

Source: Business World

Imposition of 1% withholding tax on online sellers takes effect

The Bureau of Internal Revenue (BIR) has formally imposed the one percent withholding tax on online platform providers as the government moves to level the playing field among businesses.

In his latest revenue memorandum circular, BIR Commissioner Romeo Lumagui Jr. said all electronic marketplace operators were ordered to impose the withholding tax to sellers and merchants last July 15.

The imposition of withholding tax was supposed to begin in mid-April, but the BIR extended the transitory period for 90 days to give online merchants time to comply with the other related policies or requirements of other government agencies.

“We have already extended this by 90 days. No further extensions will be given,” Lumagui said.

A withholding tax is a kind of tax on the salary earned by a certain employee. Based on the current framework, employers are required to deduct a certain percentage of their employee’s salary, which in turn will be remitted to the BIR.

“This is not a new tax, it is merely a system of taxation where taxes are collected at source, which will be credited against the total income tax liability of the sellers and merchants,” Lumagui said.

“We aim to level the playing field between brick-and-mortar stores, which are regularly complying with their tax obligations, and online marketplaces. Whether their business is operated online or through physical stores, sellers and merchants have to pay their taxes,” he said.

Further, the circular only extended the transitory period for digital financial services providers.

The BIR will impose a withholding tax of one percent on one-half of the gross remittances of the online platform providers to the sellers of the goods and services.

The withholding tax imposed, however, will not apply if the annual total gross remittances to an online merchant for the past taxable year has not exceeded P500,000.

Also excluded are online sellers with cumulative gross remittances to an online merchant in a taxable year that have not yet exceeded P500,000, as well as those cooperatives duly registered with the BIR with a valid certificate of tax exemption.

Gross remittance is the total amount received by an e-marketplace operator or digital financial services provider from a buyer.

According to the BIR, e-marketplace refers to a digital platform whose business is to connect online consumers with online merchants, facilitate and conclude the sales, process the payment of the products, goods or services through the platform.

It also facilitates the shipment of goods or provides logistics services and post-purchase support within such platforms and otherwise retains oversight over the consummation of the transaction.

This includes the marketplace for online shopping, food delivery platforms, platforms for booking of resort, hotel, motel, inn, house, condominium unit, bed space, room for rent and other similar lodging accommodations and other service or product marketplaces.

Data showed that there are roughly two million entities involved in online selling as of last year.

Source: Philstar

PHL digital economy’s share to GDP dropped in 2023

The digital economy’s annual contribution to the country’s economic output decreased as its growth slowed down in 2023, the Philippine Statistics Authority (PSA) reported on Thursday.

Preliminary data from the statistics agency showed the digital economy’s share to the country’s gross domestic product (GDP) went down to 8.4% last year from 8.6% in 2022, making it the lowest share to GDP since 2018.

In terms of gross value added, the digital sector grew by 7.7% to P2.05 trillion last year from the P1.90 trillion recorded in 2022.

However, this was slower than the 9.4% annual increase in 2022. This was the slowest expansion since the 8.7% contraction in 2020 during the pandemic.

The PSA said the digital economy is composed of digital transactions covering digital-enabling infrastructure, e-commerce, digital media/content, and government digital services.

It added the government digital services component to cover the government services directly related to supporting the digital economy.

Digital-enabling infrastructure accounted for the largest of total digital transactions last year amounting to P1.70 trillion or 82.9% of the sector’s total gross value added in 2023.

Digital media/content accounted for 2.9% or P60.21 billion in 2023. This was followed by e-commerce with a 14% contribution or P286.67 billion and government digital services with 0.2% or P4.16 billion.

In employment, there were 9.68 million employed Filipinos in the digital industries, up by 1.6% from 9.53 million in 2022. The employment growth was slower than the 8.5% in the previous year.

Last year, employment in the e-commerce sector had the largest share with 87.3% or 8.45 million employed Filipinos. Following were digital-enabling infrastructure with 11.6% or 1.12 million, digital media/content (1.1% or 104,000), and government digital services (0.1% or 5,000)

“I believe the digital industry wasn’t able to elude the long reach of inflation and sluggish business conditions that characterized 2023,” University of Asia and the Pacific Senior Economist Cid L. Terosa said.

Mr. Terosa said the negative sentiments in the business sector brought by the rising prices, interest rate hikes, and possible wage increase hauled the digital sector’s growth last year.

“If inflation is contained and the interest rate is lowered towards the third quarter of this year, I think the digital industry can recover but its growth trajectory will remain below what was achieved in 2022,” he added.

Inflation last year averaged 6%, higher than the 5.8% in 2022. This was also the highest in 14 years since the 8.2% average in 2008 during the global financial crisis.

The Bangko Sentral ng Pilipinas has hiked borrowing costs by 450 bps from May 2022 to October 2023, bringing the policy rate to a near 17-year high of 6.5%.

Source: Business World