FINANCE Secretary Carlos G. Dominguez has ordered the Bureau of Internal Revenue (BIR) and the Securities and Exchange Commission (SEC) to find out what new digital business models are being adopted by companies to determine how these firms should be regulated and taxed.
In a recent meeting with BIR and SEC officials, Dominguez said he told revenue officials to hire young and technology-savvy people for more efficient monitoring of financial tech-related businesses and enable the bureau to expand its tax base.
“Operating in the digital space is just a platform. The type of activity doesn’t matter. It’s still taxable by the BIR and subject to the appropriate regulations of the SEC,” the chief of the Department of Finance (DOF) said.
During the same meeting, Dominguez also told SEC officials to anticipate a surge in fintech activities as well as the emergence of many variations of different business models through providing an additional budget for its fintech-related programs and hiring young and tech-savvy employees in its PhiliFintech Innovation Office (PfIO).
Dominguez reportedly emphasized the need for the SEC to boost its PfIO as it serves as the first point of contact for fintech firms applying for registration. Also, the SEC performs such role for entities that have been operating or are introducing new fintech products that need assistance in navigating the SEC’s regulatory landscape.
Base broadening
THE DOF chief said he has directed Finance Undersecretary Antonette C. Tionko to “be on top of this joint BIR-SEC initiative” to broaden the tax base of fintech-related enterprises by ensuring these two agencies have “enough regulatory and collection muscle for these digital technology companies.”
Tionko, who heads the DOF Revenue Operations Group (ROG), said the BIR and SEC should also coordinate with the Department of Trade and Industry (DTI). According to her, the DTI “has done a lot of groundwork on fintech” and has a list of Philippine companies engaged in this activity.
The SEC said fintech “refers to software, service or business that provides technologically-advanced ways to make financial processes and transactions more efficient compared to traditional methods.”
These cover operators, issuers and service providers of electronic payments, alternative credit scoring companies, online lending firms, digital banks, virtual asset service companies, play-to-earn hubs, crowd-funding platforms, Big Data companies, digital advisers and insurance technology firms, to name a few.
According to the DOF, Internal Revenue Deputy Commissioner Marissa O. Cabreros said the list of fintech-related businesses provided by the SEC and the Bangko Sentral ng Pilipinas has helped identify companies that have yet to register with the BIR for taxation purposes.
Validating profile
CABREROS said the BIR is now validating the registration profile of existing fintech firm based on the list provided by the SEC and the BSP. She added the move will guide and encourage those not yet registered and compliant with their tax obligations.
“We will continue to impose current Tax Code rules on compliance and taxation based on actual activities of fintech companies, which are akin to or similar to activities of ordinary corporations or financial institutions,” Cabreros reportedly said during the meeting.
SEC Chairman Emilio B. Aquino reportedly said during the meeting the private sector regulator has already issued several rules and regulations governing these types of fintech-related companies. Aquino added that the SEC has shifted several of its services online to make it easy and convenient to register new businesses and track them through the Commission’s electronic-mapping system.
Aquino said the SEC will continue to improve its regulatory framework for existing fintech and emerging fintech-related businesses by issuing specific guidelines related to these activities and modifying regulations. He explained this could be achieved through the addition of fintech-specific requirements, the placement of fintech-specific licensing regimes and ensuring data security, among other initiatives.
Evaluating regulations
THE SEC Chairman said the regulator will also continue the evaluation of imposed regulations on the following aspects: investor protection; financial customer protection; anti-money laundering/countering terrorist financing; and, cybersecurity, in relation to fintech activities.
According to Dominguez, the BIR also vowed to continue to gather information from other regulatory agencies on identifying, addressing and closing the gaps resulting from the development and proliferation of fintech entities not clearly or explicitly covered by existing regulations.
The BIR will also be creating a team that will evaluate tax obligations of fintech company activities based on categories identified by SEC and those regulated by BSP, Cabreros reportedly said.
The BIR will also direct its Large Taxpayers Service unit to check on taxpayers engaging in activities that are variations of existing businesses and validate if correct taxes are being paid.
Cabreros reportedly said he is asking the National Economic and Development Authority to update the Philippine Standard Industry Classifications “to ensure that emerging fintech activities or entities are properly classified as a type of financial service provider and to also include all the other new industries in the digital economy.”