The Securities and Exchange Commission (SEC) and the Bureau of Internal Revenue (BIR) are working together to ensure that financial technology (Fintech) companies in the country are properly regulated and taxed while encouraging their growth and continued innovation, in support of President Duterte’s goal of financial inclusion among Filipinos.
Finance Secretary Carlos Dominguez III earlier instructed the SEC and BIR to closely monitor Fintech firms and find out what new digital business models they have been adopting to determine how they should be regulated and taxed.
Dominguez ordered the SEC to strengthen its PhilFintech Innovation Office, which serves as the first point of contact for Fintech firms applying for registration, or for existing ones that have been operating or are introducing new Fintech products that need assistance in navigating the Commission’s regulatory landscape.
He said the SEC should anticipate a surge in Fintech activities and the many variations of its business models by, among others, providing an additional budget for its Fintech-related programs and staffing its PhilFintech office with young, digitally skilled employees.
He said the BIR should also fill its positions with more young people adept in digital technology to more efficiently monitor Fintech-related businesses and enable the bureau to further 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,” Dominguez said during a recent meeting with BIR and SEC officials.
BIR Deputy Commissioner Marissa Cabreros said at the meeting a list of Fintech-related businesses provided by the SEC and the Bangko Sentral ng Pilipinas (BSP) has helped identify those companies that have not yet registered with the Bureau for taxation purposes.
“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 said during the meeting.
Cabreros said the BIR is now validating the registration profile of existing FinTech companies, based on the list provided by the SEC and the BSP, and will guide and encourage those which are not yet registered and compliant with their tax obligations.
Dominguez directed Finance Undersecretary Antonette Tionko, who heads the DOF’s Revenue Operations Group (ROG), to be on top of this joint BIR-SEC initiative to broaden the tax base of Fintech-related enterprises by ensuring that these two agencies have “enough regulatory and collection muscle for these digital technology companies.”
Tionko said the BIR and SEC should also coordinate with the Department of Trade and Industry (DTI), which “has done a lot of groundwork on Fintech” and has a list of Philippine companies engaged in this activity.
According to the SEC, FinTech “refers to a software, a service, or a 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 platforms, crowdfunding platforms, big data companies, digital advisers, and insurance technology firms, to name a few.
SEC Chairman Emil Aquino said during the same meeting with Dominguez that the Commission has already issued several rules and regulations governing these types of Fintech-related companies, and 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 by the addition of Fintech-specific requirements; the placement of Fintech-specific licensing regimes; and ensuring data security, among other initiatives.
The SEC will also continue the evaluation of imposed regulations on the following aspects: (a) investor protection; (b) financial customer protection; (c) anti-money laundering/countering terrorist financing; and (d) cybersecurity, in relation to Fintech activities, Aquino said.
Cabreros said that the BIR, for its part, will continue to gather information and knowledge from the 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.
She said the BIR will create a team that will evaluate the tax obligations of Fintech company activities based on categories identified by SEC and those regulated by BSP.
The BIR will also direct its Large Taxpayers Service (LTS) unit to check on existing large taxpayers engaging in activities that are variations of existing businesses and validate if correct taxes are being paid, Cabreros said.
“We would, however, like to ask the National Economic and Development Authority (NEDA) to update Philippine Standard Industry Classifications (PSIC), 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” Cabreros said.
Cabreros said the BIR already issued as early as August 2013 a revenue memorandum circular—RMC 55-2013—on the obligation of taxpayers in relation to online business transactions and had subsequently released several other issuances on the registration, filing of tax returns, and tax payments on these activities, the latest of which is BIR RMC 97-2021.
She said that the tax law, rules and regulations governing regular domestic/foreign company or a financial institution shall also be applicable to FinTech companies.
Thus, these firms should also file and pay income tax; value-added tax (VAT), business tax or gross receipts tax, whichever is applicable; and the documentary stamp tax (DST) when applicable.
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