Gov’t extends campaign on tax loopholes to phone kits, prepaid loads

Until Congress passes the proposed measure that would tax cell phone text messages, the Arroyo administration is expected to issue an interim mesure intended to plug the leaks in the application of the value added tax (VAT) on telecommunication services.

This as the Bureau of Internal Revenue (BIR) is looking at possible administrative measures to tighten the implementationof the VAT on pre-paid cellphone loads, particularly on phone kits and electronic loads (e-loads) sold by telecom companies.

Finance sources revealed yesterday that the BIR was trying to estimate the tax leak on phone kits and e-loads since the sale of telecom service credits has been brisk compared to actual pre-paid cards.

According to a well-placed source at the Department of Finance (DOF), it was unclear how much revenue is foregone by the government from the sale of e-loads as well as phone kits sold by mobile telephone dealers.

E-loads are most popular among students who get phone credits from vendors who in turn buy the credits from telecom service providers. The source said that unlike pre-paid cards, the BIR depends only on the declaration of telecom companies to determine the volume of sales and the accruing VAT.

"There is no way to verify this declaration," the source said.

Another possible leak, according to BIR itself, are phone kits that are given for free to phone dealers by telecom firms.

BIR deputy commissioner Kim Henares told reporters that phone dealers usually get free kits from service providers when they tie up their units to a specific provider.

"As far as the telecom company is concerned it’s a free kit so it is not a sale," Henares said. "However, dealers usually sell these to consumers and that sale is not covered by the VAT."

Henares said the BIR has no idea how big this leak is but she said the amount of transaction ran into billions of pesos and the foregone revenue was correspondingly large.

"Maybe there should be a different procedure or process for this kind of transaction, we don’t know yet," Henares said.

The telecommunications sector is the fastest industry in the services sector and the government has been trying to cash in on this growth with plans under way to raise close to P7 billion worth of tax revenues every year from the new tax on mobile phone text messages.

Finance Secretary Juanita Amatong told reporters that the DOF is initially projecting an incremental annual collection of P6.98 billion should government impose the new excise tax on text messages.

For plan users, the additional tax would automatically reflect on the subscribers’ billing statement. For prepaid users, the additional tax would mean that for every text message sent, the service provider would deduct P1.10 from the account balance instead of P1.