FACTORS THAT AFFECT WILLINGNESS OF METRO CEBU FILIPINO CITIZENS DIGITAL

EARNERS TO PAY INCOME TAX

A Thesis
Presented to the
Department of Business Administration
University of San Carlos
Cebu City, Philippines

In Partial Fulfillment
of the Requirements for the degree
BACHELOR OF SCIENCE IN BUSINESS ADMINISTRATION
MAJOR IN MARKETING MANAGEMENT

By
ANDALES, CHRISTINE MYLES
BUNGCARAS, PAOLO PHILIPPE
DE GUZMAN, ANGEL GABRIELLE
LASALA, JOSE RALPH NATANAEL
LEE, ADRIAN
MORGIA, CRISTINA GRACE
MORTEJO, SHAN DANIELLE
TURLA, ELOISA MARIE

December 2021
 APPROVAL SHEET

This dissertation/thesis proposal entitled “FACTORS THAT AFFECT WILLINGNESS OF

METRO CEBU FILIPINO CITIZENS DIGITAL EARNERS TO PAY INCOME TAX” prepared and
submitted by CHRISTINE ANDALES, PAOLO BUNGCARAS, ENJEL DE GUZMAN, JOSE
LASALA, ADRIAN LEE, CRISTINA MORGIA, SHAN MORTEJO, and ELOISA TURLA in partial
fulfillment for the degree of BACHELOR OF SCIENCE IN BUSINESS ADMINISTRATION
MAJOR IN MARKETING MANAGEMENT has been examined and accepted for PROPOSAL
HEARING

Thesis/Dissertation Committee

_______________________________________
Adviser
_________________________________ ________________________________
Chair Member

_________________________________ _________________________________
Member Member

______________________________________
Coordinator, Graduate Programs

______________________________________
Dean, School of Business and Economics
 TABLE OF CONTENTS

TITLE PAGE i
APPROVAL SHEET ii
TABLE OF CONTENTS iii
LIST OF FIGURES iv

CHAPTER
1 INTRODUCTION
Background/Rationale of the Study 1
THE PROBLEM
Statement of the Problem 4
Significance of the Study 4
Statement of Assumptions 5
Hypothesis of the Study 6
Scope and Limitations of the Study 6
OPERATIONAL DEFINITION OF TERMS 8
ORGANIAZTION OF THE STUDY 11
2 THEORETICAL BACKGROUND
Review of Related Literature 12
Theoretical Framework 40
Conceptual Framework 46

3 METHODS
Research Design 47
Research Environment 47
Research Respondents 48
Research Instruments 49
Research Procedures 50
Gathering of Data 53
Treatment of Data 54
REFERENCES 56
APPENDICES
Research Instrument(s) 62
 LIST OF FIGURES

Figure Title Page

1 Fischer tax compliance model 40

2 Conceptual Framework 46

3 Map of Metro Cebu 48

4 Formula of Cronbach Alpha reliability testing 54

 1

Chapter 1
INTRODUCTION

Rationale of the Study

Tax is the lifeblood of a nation, it is a source of revenue and funding wherein it can
support and aid a nation or country to develop and innovate by the means of spending.
Growth of governments is based on their ability to collect revenues from its citizens, and for
the past years research shows that their survival is in their factor of collecting taxes from
citizens. Although taxes are collected it is made sure that the tax of citizens is fair and
equitable making it progressive and adjusted to the citizen’s ability to pay. It is made sure
that the citizens of a country can benefit by paying taxes; they can have access to improved
services, infrastructures, medical facilities, and even special projects done by the
Government.

Digital Earners in the Philippines

Digital technology for the past years in the Philippines has been used to transact and
store finances to make financial transactions and services accessible and available to
citizens. Since the year 2020 opportunities of legitimate online money making have surged,
creating and enabling teenagers and young adults to earn online in the comfort of their
homes (onlineearning.org, 2020). Opportunities in forex & crypto trading, stocks, and nft
games have been a way of living for digital earners have risen since the start of the COVID-
19 Pandemic. The Philippine Stock Exchange now accepts these different platforms,
specifically Crypto Trading to their platforms, and this leads to the rise of NFT Games, or so
called Crypto games, which is another unique way of trading crypto assets. With COVID-19
as a reality in the Philippines nearly a number of 60,000 people are now playing NFT (non-
fungible token) games as a means to “play-to-earn” (Christian Nunley, 2021). With the use of
cryptocurrency, players would be able to buy, sell, trade, and once you're all done you can
convert your cryptocurrency into real cash. Since digital games / NFT games have no
limitations it has been a way of living for Digital Earners, which spiked since March 2021 by
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9.6% as per Jeffrey Zirlin to CNBC. While offline firms are facing a huge challenge on their
hands due to lockdowns all around the country, making money online and “play-to-earn”
create a way for digital earners and citizens to produce extra revenue without using much of
their resources.

Aside from cryptocurrency as a way of living, investing in stocks also is a means for
digital earners to sustain and provide for themselves. By becoming a shareholder of a
company investing in stocks digital earners are able to gain from Capital Appreciation and
Dividends. Capital Appreciation is dependent on the rise of price per share from your stocks,
but its rise is never guaranteed since there is a possibility it can drop leading to Capital Loss.
Compared to Capital Appreciation, Dividends are done mostly by digital earners since it is
easier to keep track of and manage. This gives investors and digital earners an advantage
since a company shares its earnings with their shareholders in the form of cash or additional
stocks directly to the inventors’ account. To this day a number of 640,665 digital earners
have been investing in stocks since 2015 increasing by 9.4% (Jonas 2020). Although
investing in stocks will cost more compared to cryptocurrency since it is never risk-free,
digital earners start young and go for long term with their investments and go and test as
much as they can to invest.

Emerging Tax Issues in the Digital Economy

The Digital economy is characterized by an unprecedented dependence on

intangibles, enormous data consumption especially personal data, and widespread adoption
of multi sided business structures. According to Janet Cuenca (2021), the digital economy
continues to grow at breakneck pace, driven by the capacity to gather, utilize, and analyze
vast volumes of machine readable information or digital data on virtually everything.” These
digital data were obtained from the digital footprints (cookies) of personal, social, and
commercial actions conducted on numerous digital platforms. On the other hand,
digitization has created new problems for policymakers at all stages of development
throughout the world.
 3

Having to tax digital earners has been a struggle or challenge for the Philippine
government. According to Cuenca (2021), Taxation of Intangibles has been a big challenge
to tax policymakers and administrators, particularly because the current international tax
framework was originally designed for a “brick and mortar” economy. Brick and mortar
establishments refer to those businesses that have a place in the government in which they
have been assigned by a tax jurisdiction. To compare it with the Digital economy, it is harder
to navigate because of its new business model that does not require a physical presence and
so they easily cut across borders. With the rise of the new business model of the digital
economy, opportunities like tax avoidance have been discovered. The business model that
was pioneered by the most outstanding digital U.S-based technology giants like Google,
Apple, Facebook, etc., are grounded with tax avoidance. With the Heavy reliance on digital
technology, economies became borderless, and outdated tax rules enabled these business
models to escape taxation in the jurisdictions where they do business (Moribonu 2018). With
the Philippines' increasing internet economy, developing tax concerns in the digital economy
will undoubtedly have consequences for the country. With this it is regarded as essential to
navigate and study the many tax difficulties and obstacles in the digital economy, as well as
to investigate other nations' experiences with digital transaction taxes, taking note of the
lessons and insights that are applicable to the Philippines. They need to deeply understand
the digital economy so that they may be able to tackle this new framework to decrease the
number of digital earners who do not pay taxes. Such understanding is critical in calculating
the potential tax base and developing tax strategies that will produce money while not
reducing the benefits of digitalization.
 4

THE PROBLEM

Statement of the Problem/Objectives

The study is to determine the factors that affect the willingness to pay tax for the
digital earners and those engaged in unregulated online activities.

1. What are the legal requirements for digital earners?

2. How will the government oblige the digital and unregulated online earners to pay
their income taxes?
3. What benefits will digital earners and those engaging in unregulated online activities
receive if they pay their income taxes?
4. Based on the findings of the study, formulate a system that motivates digital and
online earners to start paying income taxes to generate revenue for the government.

Significance of the Study

This study is aimed to benefit the following:
The Philippine Government and Stakeholders

Long-term funding for social programs and public investments is necessary by our
government to promote economic growth and development. Programs for health, education,
infrastructure, and other services are critical to achieving the common goal of a prosperous,
functional, and orderly society. There is also a need for the government to raise their
revenue. Taxation not only pays for public goods and services; it is also a key ingredient in
the social contract between citizens and the economy. Since the study focuses on identifying
and measuring the willingness of digital earners to pay taxes, the government will be able to
gauge at what range they should be taxing these earners without disuading them from paying
the amount imposed. By using the data collected by the researchers, they will be able to
create a better system of taxing in our country that is fair and beneficial for both parties.
They will also be able to reaffirm what changes to implement in terms of taxation considering
all the adjustments that we had to undergo, transitioning from the face-to-face set up to the
digital one.
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The Digital Earners

With the data gathered from the study, the digital earners will be able to convey their
sentiments towards how they are currently being taxed by the government or lack thereof.
They will also have a better chance of influencing the taxation laws because with this study,
the government will be able to better understand the behaviour of digital earners relating to
taxation. With this they can make amendments to the laws and regulations relating to how
these digital earners are going to be taxed and reach a middle ground where the digital
earners are also happy with the outcome.

The researchers of this study

The researchers will be able to understand just how taxation works in the real world,
it’s limitations, and how it impacts the citizens and the economy. As young adults who are
slowly starting to earn in this digital age, it will be a learning curve for them and will
hopefully help them make better, wise, and sounder decisions relating to their finances. By
being able to observe and collect data relating to taxes in the digital set-up first hand, the
researchers will be able to distinguish what is ethically correct and appropriate when it
comes to taxing and being taxed. They will also be able to understand just how crucial it is to
exercise their rights as citizens in this country.

Statement of Assumptions
In conducting this study, the following assumptions were made. It is assumed that:
1. The participants, specifically the chosen digital earners, of this study will provide
their honest opinions and answers when taking the survey regarding their
willingness to pay taxes.
2. The research will avoid using jargon in which not all digital earners are familiar with
to ensure that all respondents can fully grasp and understand the questions being
asked on the survey.
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3. The instrument being used, namely Google Forms, will elicit reliable and
comprehensive responses.
4. The research will only use the crucial information provided by the respondents for
the sole purpose of this research study and nothing more. The privacy and
confidentiality of all respondents shall be protected and respected.
5. The research will not be biased when it comes to choosing the respondents as long as
they fall within the category of being a digital earner with Filipino citizenship and
who currently resides in the Philippines as well. Race, religion, gender identity, and
the like will not affect the researchers’ willingness to reach out to these people.

Hypothesis of the Study

In the study factors that affect digital earners’ willingness to pay taxes will be
identified and investigated. This is essential for the secondary goal of formulating a system
that motivates digital and online earners to start paying taxes.

H0: Factors determined have no significant effect on digital earner’s willingness to pay tax.

Ha: Factors determined have a significant effect on a digital earner's willingness to pay tax.

H02: Factors determined will not benefit significantly in formulating a tax system.

Ha2: Factors determined will benefit significantly in formulating a tax system.

Scope and Limitation of the Study

The goal of this study is to examine the factors that affect the willingness to pay
income tax for digital earners and those engaged in unregulated online activities. This study
focuses on resident citizen Filipinos of all genders and ages, residing in Metro Cebu,
especially digital earners in the Philippines. Because the digital economy, as we all know, is
saturated, we will only touch on the industries of online merchants, freelance workers,
content creators, and cryptocurrency.
 7

With the present online learning setup and the ongoing pandemic, researchers have
limited access to primary data. As a result, primary data will be gathered through online
surveys, focus group discussions, and interviews. Due to time constraints and a limited
budget, the sample size is unavoidably less than the standard of 10% of the overall
population. Aside from that, because this research is being conducted by students, their
financial resources are inadequate. Secondary data will be gathered through extensive
online research using accessible and reliable sources.

The researchers have decided to limit their study to the four e-commerce industries
indicated above. This study will also address, assess, and categorize the elements that the
Bureau of Internal Revenue or other government agencies may or may not have identified
when it comes to digital earners' desire to pay taxes. This research will solely discuss the
income taxation system in the Philippines, as well as the reactions of Filipino digital earners
when paying such. This study is based on scientific research, therefore any bias or prejudice
from the researchers is prohibited. The primary goal of this study is to examine the research
problem and to advance academic understanding on the subject.
 8

OPERATIONAL DEFINITION OF TERMS

Business Model. a design for the successful operation of a business, identifying

revenue sources, customer base, products, and details of financing

Capital Appreciation. Is a rise in an investment’s market price. The difference

between the purchase price and the selling price of an investment

CryptoCurrency. Cryptocurrencies are systems that allow for secure payments

online which are denominated in terms of virtual "tokens," which are represented by ledger
entries internal to the system

Crypto Trading. Crypto trading is the act of speculating on cryptocurrency price

movements via a Contract for Differences (CFD) trading account, which is a contract
regarding a price-change in a certain crypto asset, or buying and selling the underlying coins
via an exchange

Cookies. is a piece of data from a website that is stored within a web browser that
the website can retrieve at a later time. Cookies are used to tell the server that users have
returned to a particular website. When users return to a website, a cookie provides
information and allows the site to display selected settings and targeted content

Digital Data. Digital data is data that represents other forms of data using specific
machine language systems that can be interpreted by various technologies

Digital Earners. Digital Earners are citizens who generate their income online. They
may use cryptocurrency as a medium for income or NFT games and such
 9

Digital Economy. Is the economic activity that results from billions of everyday
online connections among people, businesses, devices, data, and processes

Digital Technology. The branch of scientific or engineering knowledge that deals

with the creation and practical use of digital or computerized devices, methods, systems, etc

Dividends. Is the distribution of some of a company’s earnings to a class of its

shareholders, as determined by the company’s board of directors

Economy. the wealth and resources of a country or region, especially in terms of the
production and consumption of goods and services

Intangibles. Intangibles is an asset that is not physical in nature, such as a patent,

brand, trademark, or copyright

NFT Games. A genre of video games built on the concept of tokenization and digital
asset creation, and powered using blockchain technology other known as play-to-earn video
games

Philippine Stock Exchange. One of two stock exchanges in the Philippines.

Established in 1927, it is one of the oldest exchanges in Southeast Asia, and it remains one of
the most prominent. It contains nearly 250 listed companies with a market capitalization
over $100 billion. It maintains offices in both Manila and Makati City

Revenue. Revenue is the money generated from normal business operations,

calculated as the average sales price times the number of units sold

Stocks. A stock (also known as equity) is a security that represents the ownership of
a fraction of a corporation. This entitles the owner of the stock to a proportion of the
corporation's assets and profits equal to how much stock they own. Units of stock are called
"shares"
 10

Tax. a compulsory contribution to state revenue, levied by the government on

workers’ income and business profits, or added to the cost of some goods, services, and
transactions

Tax Law or Code. A field of law that directly pertains to the inherent right of the
government to levy taxes to its citizens. It also involves any piece of legislation related to
taxation.

Taxation. Refers to the act of levying or imposing a tax by a taxing authority

Unregulated Business. A type of business or activity that is not controlled or

directed by any existing law. In the study it focuses on the businesses unregulated by any
“Tax Law”.
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ORGANIZATION OF THE STUDY

To provide a clear understanding of the study, this thesis proposal outlines and
illustrates the steps undertaken during the whole research process. This study is divided
into five chapters which include as follows:

Chapter 1 describes the rationale of the study, statement of the problem, significance
of the study, assumptions of the study, hypothesis of the study, scope and limitations of the
study, definition of terms, and the organization of the study.

Chapter 2 deals with the theoretical background of the study which includes the
review of related literature, theoretical framework, and conceptual framework.

Chapter 3 provides the research methodology specifically outlining the study’s

research environment, research population, research instrument, research procedure,
gathering of data, and treatment of data.

Chapter 4 is where results from the previous chapter are presented, analyzed, and
interpreted.

Chapter 5 is the final chapter of the paper and it summarizes the entirety of the
research. It presents a clear view of the study and its development through the findings,
conclusions, and recommendations of the researchers.
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Chapter 2
THEORETICAL BACKGROUND

Review of Related Literature

The studies below focus on how the economy transitioned to the digital setting and
how the taxation occurred. They also touch on the general situation of the taxation of the
digital earners, willingness towards paying taxes, as well as the issues and challenges
relating to the taxing of the digital economy.

Shift to the Remote Working Environment

The current situation of our world right now is way different from 5 years ago. The
COVID 19 pandemic brought an onslaught of change and reformations in our societies and
economies, both locally and globally (Shinozaki and Rao, 2021). One notable example is the
drastic change when it comes to work setups and arrangements. In response to the epidemic,
governments all around started to implement strict lockdowns, social distancing regulations
and MECQs (Daza, 2020). Different companies and businesses also had to change their
operations and allow a more flexible working environment for their employees. This is their
way of adapting and responding to the “new normal”.

Remote working became and is still the preferred and mandated method of working
in this pandemic. According to Daza (2020), almost 72% of businesses and companies in the
Philippines have already started to operate remotely. In a study conducted by Sprout
Solutions, they were able to gather data from different sectors in the country to assess which
industries were already adapting to the new working set-up. Results showed that the BPO
industry, with 31%, Information and communication, with 9.79%, and healthcare, with
8.51%, were the biggest industries that adapted to the remote working environment in this
pandemic. A big portion of the Filipinos in our country actually prefer this mode of working
compared to pre-pandemic times. According to Ines (2021), they will even go as far as
quitting their occupations if it does not include flexibility in the job description. With the shift
 13

they’ve experienced in this pandemic, people now prefer to work in hybrid work conditions
rather than the traditional office setups.

Aside from the remote working set-ups of businesses, at present, Filipinos are also
utilizing the digital world as a platform to earn income by uploading contents to several
online platforms and selling their own products in the digital marketplace (Salazar 2021).
With the modern innovations and surge of the use of technology, the digital world became a
very convenient marketplace to promote not only products and services but also art and
creatives. These new innovations paved the way for a limitless marketplace where anything
is possible and within our reach with just on tap on the screen.

Taxation of Digital Earners

The aforementioned situations did not escape the watchful eyes of the government
and they were quick to respond to these changes and started to enact different policies and
guidelines to regulate the different aspects of the new online and digital methods of
conducting business operations (International Bar Association, 2021). Included in these new
regulations is the taxation of the digital earners. As stated by EY Global (2020), the
Philippines House of Representatives introduced a bill named “Digital Economy Taxation Act
of 2020” or DETA 2020 Bill. This bill aims to tax the digital economy with holding/income
tax and value-added tax (VAT). According to the bill, any products, services and transactions
that are administered digitally and on electronic commerce platforms will be subjected to a
12% VAT. These networks or platforms will be assigned as withholding agents for income
tax and VAT purposes. Foreigners who offer services digitally will also be subjected to the
taxation and will be required to establish representative offices or appoint resident agents
to carry out their business operations in the country. The DETA 2020 Bill is still subject to
further amendments in the congress of the Philippines (EY Global, 2020).

According to the same article, it was mentioned that the Department of Finance and
the Bureau of Internal Revenue are currently drafting more regulations and creating a better
system to effectively collect the taxes on local and cross-border digital transactions. As for
 14

the income tax purposes, the DOF is closely monitoring the developments of countries where
taxes of digital business transactions are fully implemented. They will use it as a basis in the
reformations that they plan to enact on our country. As stated by EY Global (2020), in
response to the shift the government of the Philippines is continually identifying additional
sources of revenue to fund the country’s increased spending and to fully capture the value
created through the new setup of working and the different digital transactions online. This
is in order to ease the burden on the individual taxpayers and to design innovative
approaches to encourage tax compliance.

According to Villegas (2020), the Bureau of Internal Revenue also recently issued a
Revenue Memorandum Circular (RMC) No. 60-2020. The purpose of this is to remind the
people who are earning income through digital means to ensure that their businesses or
companies are legally registered. Online businesses that cover merchants, payment
gateways, internet service providers and different delivery channels must also comply with
the Philippine tax code. This regulation required the issuance of sales invoices, keeping of
registered books of the accounts, filing of tax returns and other taxes. The RMC also clarifies
the tax obligations of different social media personalities that earn income by uploading
sponsored content online on various social media platforms. It was stated that they must
comply with the requirements of BIR. The memorandum also advises the BIR offices to
conduct timely full-blown tax investigations on these influencers who are within their
respective jurisdictions.

As stated by Salazar (2021), taxation for doing business transactions online is not
new. With the increasing prevalence of digital commerce, in 2013, BIR issued RMC 55-2012.
It’s aim was to remind the people who conduct business online that they are still subject to
the same regulations and requirements as that of traditional businesses in the traditional
brick and mortar setup. The different tax laws implemented in the Philippines recognizes the
physical presence as the main determinant of whether it should be subjected to tax or not.
These laws and regulations were crafted when the digital community was almost
nonexistent however as the world evolved, they did so too (Salazar, 2021).
 15

These are only some of the different changes and responses that the government was
able to implement in this pandemic. The introduction of digital taxation is not an easy task
and is considered as a balancing act that the Philippine government must carefully consider
and execute. They must take the economy and foreign investments into account (Villegas,
2020).

Challenges and Issues of Taxing the Digital Economy

According to Hagiwara, Gonzalez, and Wang (2019), The taxation system in our
country is not perfect and it is subject to changes and developments. As we evolve our
systems, it evolves with us too because a good tax system should adequately capture the
value creation and profit making of the different entities in our Country, no matter the setup,
whether it's the traditional face-to-face setup or within the digital economy. It needs to be
transformed to make it both fair and efficient in a digitalizing world.

With that in mind, challenges and issues are bound to arise when implementing
taxation regulations. The following listed below are some of the issues that might arise when
it comes to taxing the digital economy and its earners as it grows in size and numbers:

1. Tax Revenue Loss

Digitization of business activity can facilitate BEPS and lead to double non-taxation
and redistribution of taxable income. Multinational corporations can sometimes avoid tax
obligations in a number of ways. They can do so by avoiding local operations, minimizing
company and asset size to reduce taxable income, and taking advantage of the tax treaties
of the Philippines with other countries that generally impose lower tax rates.

2. Missing Taxable Matters

Current international tax rules allow the home country to tax the corporate earnings
of a non-resident only if their local presence is a permanent establishment, whether it is a
large physical presence or a dependent agency. However, in a digitizing world, business can
be conducted without a physical presence in the market jurisdiction using a website; even
 16

the website servers do not need to be configured locally. Online advertising and social media
platforms are common examples. Furthermore, the digital revolution of business models
throws the exclusion clause of the permanent establishment legislation into doubt..Activities
that have traditionally been regarded as preliminary or supportive may become the primary
business model in the market country. Furthermore, with the advancement of digital
technology, personal services can be delivered online, allowing a company to avoid
maintaining a permanent presence in the market country. In short, existing Nexus standards
only capture physical presence, leaving "digital presence" unreachable, even if it is
important.

3. Unclear Income Characterization

In general, tax rules rely significantly on income categorization to establish the rate
and method of taxes. Because of digitalization, it is difficult to discern certain types of income,
particularly royalties, service fees, and commercial earnings. If the buyer is licensed to use
the design and print the goods locally, it is unclear whether the payment is for royalties,
service fees, or business earnings. If the producer is a nonresident, the implications are more
serious because international tax law prohibits the source country from taxing business
profits in the absence of a local permanent establishment. Payments for cloud computing
services, cloud space rental, and other technical services are also examples. The issue of
income classification extends beyond direct taxation and has ramifications for VAT. The tax
rate under the VAT system is determined by the categorization of transactions and incomes.
With new business models, digitalization also poses a challenge to old tax processes.
Software, e-books, and 3D printing are typical examples.

4. Ineffective Value-Added Tax Collection

VAT collection challenges arise as a result of digitalization, notably in business-to-
consumer (B2C) and consumer-to-consumer (C2C) transactions. For starters, the expense of
collecting VAT on low-value goods transactions may be more than the tax income generated.
Second, the intricacy of VAT collection on service and intangible transactions makes cross-
border, online transactions difficult to tax. C2C transactions, which make up a significant
portion of e-commerce, differ from business-to-business (B2B) and business-to-consumer
 17

(B2C) marketplaces, which already have a tax registration and administration system in
place. Individuals and households comprise the majority of C2C suppliers. C2C vendors are
not liable to VAT where the existing VAT system lacks a specific registration and collection
mechanism for individual suppliers.

According to Cuenca (2021), the different challenges and issues of taxation in the
digital economy usually stem from its multifaceted nature. The IMF (2018) put emphasis on
the fact that there is a big uncertainty surrounding the term “digital economy” or “digital
sector”. There is also a lack of a precise definition and classification of industry and product
for the different internet platforms or any services associated with the digital setting. This
brings a lot of problems and hurdles when it comes to measuring its true value. This
concerns actually raise more important questions relating to the subject such as:

1. Should the digital economy be limited to activities supported by online platforms,

such as online shopping and online movie streaming?
2. Should it be defined more broadly as all industries that have integrated data and the
Internet into their manufacturing processes?
3. The term "digital sector" has been bandied about a lot, but what precisely does it
mean, and is it synonymous with "digital economy"?
4. What is its connection to the ICT sector?
5. What is its relationship to e-commerce, which is simply one element of the digital
economy?

In addition, (IMF 2018, p.6) emphasized that improvements on the measurement of

the values of the digital products, services, and transactions could overall improve the
measurement of economic values in our country (e.g inflation, stocks and etc). With this in
mind, for us to progress and improve our economy’s condition, it's really important for us to
understand and precisely define and measure the size, impact, and value of the digital
economy.
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General Citizen’s Willingness to Pay Tax

In the search for existing studies, there was difficulty finding local research regarding
the willingness to pay taxes in the Philippine setting. Thus, the studies presented involve
research done in the neighboring Southeast Asian nations. Despite the different locale of the
following studies, there are similarities in their people’s culture and personality vis-a-vis the
Philippines’. Thus, we will still be able to gather sufficient context and observations from
previous studies, which we may use to consider when conducting our own. Moving forward,
the related literature on the willingness to pay taxes are as follows:

In the Point of View Research Accounting and Auditing journal, authors Ali, Mursalim,
& Nasaruddin (2020) published a study entitled “Several factors influence the willingness to
Pay taxes”. The study is based in Indonesia, and aims to analyze and examine the factors that
might affect an individual’s willingness to pay taxes, specifically at the West Makassar
Pratama Tax Office. In the study, they presented existing research related to the payment of
taxes, and took note of the different factors and hypotheses that these studies presented. The
study later established three hypotheses statements to be tested, which are (1) Knowledge
of taxation has a positive and significant effect on the willingness to pay taxes, (2) Fiscus
services have a positive and significant effect on the willingness to pay taxes, and (3) The tax
audit has a significant negative effect on the willingness to pay taxes.

When gathering data in this study, the researchers utilized a quantitative

questionnaire, which was answered by taxpayers of the West Makassar Primary Tax Office.
They had a total sample of 100 respondents. For their research method, they used
descriptive analysis and multiple linear regression analysis in treating the data and testing
their hypotheses. The results of such tests tell us that tax knowledge has a positive and
significant effect in terms of one’s willingness to pay taxes. Therefore, an individual would
be more willing to pay their taxes if they have sufficient knowledge about the purpose of
taxation and the tax regulations that exist in that location. For their second hypothesis, tax
fiscus service would also have a positive and significant effect. To summarize, their results
conclude that having good tax processes and services would increase people’s willingness to
 19

pay tax. If taxpayers feel like they are encouraged and supported in their payment of taxes
with good services, it would encourage their motivation to pay their tax. Finally, the study
also revealed that having a tax audit or examination would increase an individual’s
willingness to pay taxes. Taxpayers who have to undergo examination or audit would be
more willing and likely to pay their taxes since they will also have greater understanding and
awareness of their specific obligations in terms of tax.

Public Management As Citizen Compliance: A Case Study Of Income Tax Compliance

Behavior In Thailand is a PhD dissertation done by Maneekwan Chandarasorn (2012) for the
University of Kansas. In the study, the researcher aimed to explore Thai citizens’ perceptions
of their personal income tax system and to identify important factors that would determine
tax compliance behavior in Thailand. This study was also deemed important because, as
stated in the dissertation, there are limited studies on tax compliance for third world
countries and most of the study is done on first world or Western nations.

The study claims that in Thailand, there are approximately million people who do not
file and pay their taxes. It presented three terms that are usually discussed when it comes to
the payment of taxes: tax evasion, which is the illegal escape of tax payment; tax avoidance,
which is a legal way to reduce one’s taxes; and finally tax compliance, which is the complete
fulfillment of tax payments. The study assessed what could influence people to exhibit more
compliant behaviors when it comes to the payment of taxes. The five hypotheses tested by
the study are as follows:
1. Perceptions of greater enforcement increase tax compliance behavior.
2. Perceptions of a fairer tax system increase tax compliance behavior.
3. Perceptions of better government administration increase tax compliance behavior.
4. Greater tax knowledge increases tax compliance behavior.
5. Those with higher income (H5.1), those who are older (H5.2), those who are married
(H5.3), those who are female (H5.4), those who are not self-employed (H5.5), and
those with higher levels of education (H5.6) tend to have higher tax compliance.
 20

To summarize, the study would like to test if there is greater tax enforcement, a fairer
tax system, a better government administration, and greater knowledge on tax would
increase an individual’s likelihood of complying with their tax payments. In terms of
variables that are specific to the taxpaying individual, the study tests if those who are older,
with higher income, married, female, employed, and with higher levels of education would
be more likely to comply with their tax payments. To test these hypotheses, the researcher
conducted a face-to-face survey of 1,148 citizens in Bangkok, as well as interviews with 15
Thai tax experts.

After processing the data of the survey and interviews, the research concludes that
the following factors are significant in determining one’s compliance in paying tax. First, tax
experts believe that a lack of tax knowledge is the primary reason why citizens do not file
their taxes. The survey also showed that the main reasons why citizens do not properly file,
declare, or pay their taxes is directly related to their perception of the government
administration and fairness of the tax system in terms of corruption, revenue spending, taxes
that are perceived to be unfair, and the belief that many others also get to evade taxes
without punishment. In response to this, the researcher suggested that in order to increase
tax compliance among Thai citizens, there should be (1) incentives to compliant taxpayers,
(2) stronger enforcement of tax laws, (3) better government service quality, and (4) visible
awareness of punishment for individuals who evade taxes.

To conclude both literature being reviewed on the general citizen’s willingness to pay
tax, the studies from both Indonesia and Thailand show that the perception of the taxpayer
is very important in determining their willingness to pay taxes. It is important that the
taxpayer has knowledge about the taxes they are obliged to pay, and can feel that the tax is
both enforced and those who evade it will be punished. At the same time, taxpayers would
be more willing to pay their taxes if they feel like the taxes are being used properly, and if
the services and systems used in tax payment are convenient and not a hassle to the taxpayer.
With Southeast Asian nations’ people sharing similar culture, characteristics, and
personalities, this study will be able to use some of the factors presented in analyzing and
reviewing the willingness of digital earners to pay taxes in Metro Cebu. The questions that
 21

this study needs to ask of its survey population may be modeled by these related literatures,
and the results of which may be compared to see whether or not similar factors regarding
the willingness to pay taxation from our neighboring countries also apply to the Philippines,
specifically, Metro Cebu.

Tax Theory Applied to the Digital Economy

In a study by Lucas-Mas, C. and Junquera-Varela, R. (2021), they stated that

nowadays, in the twenty-first century, the digital economy has soared as a result of the
widespread availability of broadband internet access, which, when combined with the
introduction of advanced mobile networks and widespread access to digital devices, has
facilitated the online distribution of digital content to a borderless market of global users,
without the need for a physical presence. The Organization for Economic Cooperation and
Development (OECD) issued the Taxation Framework Conditions in 1998, at the Ottawa
Ministerial Conference on "A Borderless World: Realizing the Potential of Electronic
Commerce". This document outlined the principles that should guide governments in their
approach to e-commerce taxation, noting that e-commerce should be treated in the same
way as traditional commerce and highlighting the need to prevent any discriminatory
treatment in accordance with the neutrality principle. However, that same year, the World
Trade Organization granted a tariff-free zone for digital trade, which has since been
reaffirmed and is still in effect. The lack of a regulatory framework for the rapidly digitizing
economy, as well as the legal uncertainty it created for taxpayers and governments,
prompted the G-20 Finance Ministers to request that the OECD submit an interim study on
the implications of digitalization for taxation by 2018. Following the publication of the study
(OECD 2018), the G-20 mandated the need for a consensus-based approach on tackling the
(direct) tax difficulties of the economy's digitalization by 2020. The G-20 assigned this
responsibility to the OECD's Inclusive Framework on Base Erosion and Profit Sharing
(BEPS), and the Steering Group, supported by the OECD Secretariat, has been working hard
on it.
 22

According to Lucas-Mas and Junquera-Varela (2021), it is critical to understand that

the variety of unilateral actions implemented, as well as the OECD's Unified Approach
suggestions, has considerable theoretical and practical disparities. The summary of direct
tax measures that target the digital economy are as follows:

1. OECD/Inclusive Framework Pillar One proposal

The Pillar One proposal includes new profit allocation guidelines for consumer-facing
firms. Profit is distributed according to simple, formulaic principles, which include a
fixed baseline return for distribution and marketing responsibilities, as well as a part
of the group's overall residual profits. Where no existing taxing right exists, the plan
establishes standards for establishing a new taking right (“nexus”) in market
jurisdictions, which can apply regardless of physical presence. If such a link was
established, the earnings would be measured as a percentage of the group's overall
residual profits.
2. Withholding on digital services
These measures create and/or implement a source of taxation right over payments
made by residents to nonresidents for digital services (by functioning as a collection
mechanism). Withholding taxes, which are already common for royalty, interest, and
dividend payments, can be particularly effective for taxing nonresidents who have no
physical presence in a jurisdiction, though the practicalities of withholding an amount
in respect of tax and then remitting it to the tax administration make this mechanism
better suited to payments made by businesses than by consumers.
3. Digital permanent establishments
These policies provide authorities the authority to tax nonresident enterprises that
engage with their economy on a regular basis. Even if the company has no physical
presence in the jurisdiction, this strategy can be used. If a business has a sufficient
amount of sales or user involvement in a jurisdiction, it is considered to have a taxable
presence. There are several questions about how profit should be distributed to the
"nexus" and how existing attribution criteria should be applied in circumstances
where a permanent establishment is deemed.
 23

4. Digital services tax (DST)

These initiatives aim to tax businesses that make money from digital services like
online advertising and intermediary services directly. Some DSTs want to tax digital
service providers' income by tying it to fees paid directly or indirectly by users or
residents in their jurisdiction. Other DSTs distribute global digital services revenue
in a jurisdiction based on the number of users, views (advertising services), or
transactions (intermediary services).
5. Equalization levy
India has enacted legislation that puts a tax on certain e-commerce activities. The levy
previously solely applied to advertising; however, in 2020, it was expanded to include
the sale of goods, provision of services, and/or facilitation thereof (for example,
through a platform) by an e-commerce operator.

The vast majority of nations around the world have not enacted unilateral digital
direct taxes, however some are now weighing the merits and drawbacks as a stopgap
measure. The lack of consensus on the use of interim measures was evident at the first G-20
Finance and Central Bank Deputies Meeting in 2019; while some countries (Canada, the
United States) oppose them because they may have unintended consequences, others
(France, the United Kingdom) argue that the challenges do not outweigh the need to ensure
that tax is paid on digital services supplied in the market (Lucas-Mas & Junquera-Varela,
2021).

Tax Claims by Market Jurisdictions: What Basis Do They Have?

Market authorities have seen an opportunity to broaden their tax sovereignty and
claim new taxing authority over the digital economy. This growth plainly contradicts the
foundations of classical tax theory, which allocates taxing rights to residence nations in the
absence of any physical presence of the digital supplier in the market jurisdiction. Some
suggestions have turned to new paradigms of value creation and inventive tax nexus and
profit allocation strategies in their quest for explanations to justify their tax claims. Lucas-
Mas and Junquera-Varela (2021), highlighted the importance of clarifying the grounds on
 24

which market authorities assert taxing rights against foreign digital suppliers operating in
their territory without having a physical presence is critical. For new nexus regulations,
there are several options:
1. Tax claims on the basis of taxable presence can be made by constructing a new
definition of permanent establishment that addresses the physical presence
limitation of emerging digital company models that operate remotely or with a
limited local presence and generate revenue from a market jurisdiction.
2. Tax claims based on taxable source; in order to create a new source of taxable income
deemed to arise from value creation within a market jurisdiction (user participation,
marketing intangibles).
3. Other counter-measures to the use of tax avoidance schemes; however, their scope will
not only focus solely on just the digital economy (diverted profits tax).

Taxation and Today’s National Economy

It was in the beginning of the 1990s that the gradual growth of the internet had
accelerated the features and possibilities of a widespread digital economy. Hence, the
importance of reviewing the work of the Organisation for Economic Co-operation and
Development (OECD) is crucial. The Organization for Economic Cooperation and
Development (OECD), which includes the United States, seeks to identify and solve common
challenges and promote solutions. The OECD is currently investigating a high-profile recent
problem known as “BEPS,” which stands for “base erosion, profit shifting,” a problem
exacerbated by the digital economy. In March 2014, the OECD produced a discussion draft
on the tax problems of the digital economy for public opinion as part of its study. According
to the OECD, “the digital economy is characterized by an unprecedented reliance on
intangible assets, massive use of data (particularly personal data), widespread adoption of
multi-sided business models capturing value from externalities generated by free products,
and the difficulty of determining the jurisdiction in which value creation occurs.” The report
discusses various facets of the digital economy, such as e-commerce, "app stores," online
advertising, and "cloud-based operations."
 25

The “Internet of Things” (a network of interconnected devices and people), virtual currency,
and sophisticated robotics, 3D printing, and the “sharing economy” are all examples of new
technologies. These and other elements are the result of the ongoing development of
“information and communication technology” (ICT). According to the research, new
technologies frequently enable new business models, such as advertising (e.g., adverts on
social media sites), selling data obtained from websites, and providing services online.

Income Tax Obligations According to the National Internal Revenue Code (NIRC)

In an article by the Oxford Business Group the Internal Revenue Code (NIRC) is the
source of all taxation policies and processes (Oxford, n.d). Including how, when, and what
citizens are taxed, this originates from the legislative branch. The IRC falls well within the
scope of the study as online earners are subject to the law. Online earners as defined by the
study as citizens who generate their income online falls within the clauses of the IRC.
Defining taxpayers as a citizen of the Philippines residing therein is taxable on all income
derived from sources within and without the Philippines (NIRC sec. 23-A). As the study
focuses on income tax the following are tax rates for individuals.

Rates of Tax on Taxable Income of Individuals tax shall be computed in accordance with and
at the rates established in the following schedule:

(a) Tax Schedule Effective January 1, 2018 until December 31, 2022:

Not over P250,000……………………..……… 0%

Over P250,000 but not over P400,000..…….. 20% of the excess over P250,000

Over P400,000 but not over P800,000…….. P30,000 + 25% of the excess over
P400,000

Over P800,000 but not over P2,000,000…….P130,000 + 30% of the excess over
P800,000
 26

Over P2,000,000 but not over P8,000,000…. P490,000 + 32% of the excess
over P2,000,000

Over P8,000,000 ……………………………. P2,410,000 + 35% of the excess over

P8,000,000

Tax Schedule Effective January 1, 2023 and onwards:

Not over P250,000……………………………… 0%

Over P250,000 but not over P400,000………. 15% of the excess over P250,000

Over P400,000 but not over P800,000…….. P22,500 + 20% of the excess over
P400,000

Over P800,000 but not over P2,000,000. ….. P102,500 + 25% of the excess over
P800,000

Over P2,000,000 but not over P8,000,000.. P402,500 + 30% of the excess over
P2,000,000

Over P8,000,000 …………...…………...….. P2,202,500 + 35% of the excess over

P8,000,000

Tax rates taken from IRC (sec. 24. A-2)

Section 24 of the Internal Revenue Code does not indicate any special provisions as
to the source of income. As long as an individual earns and falls within the rates income is
taxable. Hence, income from online earners is taxable. As seen as well in Section 31 where
taxable income is defined as “The pertinent items of gross income specified in this Code, less
the deductions, if any, authorized for such types of income by this Code or other special laws.”
(sec. 31)
 27

The New Economy: How are online businesses taxed

The Bureau of Internal Revenue (BIR) with the definition from Section 31 recognizes
online businesses as taxable. Despite congress not having passed a special law addressing
online transactions and business (Bernardino & Dy, 2020). The still non-existent special law
for online businesses does not mean tax exemption. The IRC makes no distinction with
businesses that have a physical presence and those without. Therefore, online transactions
should be taxed in the same way as conventional ones (Bernardino & Dy, 2020), see tax rates
above for reference. The BIR reinforced this idea through Revenue Memorandum Circular
(RMC) 60-2020 guides online sellers to register and comply with tax obligations.

According to a review by Manila times, The New Economy it states that like
conventional businesses online businesses are subject to the law, such as Tax Reform for
Acceleration and Inclusion Law (TRAIN) which exempts individual taxpayers with earnings
not exceeding Php 250,000 from tax. In more recent developments, in an effort to meet the
Digital Economy. The House of Congress has proposed House Bill 6765 known as the “Digital
Economy Taxation Act of 2020” that imposes a VAT on online transactions of goods and
services (abolawfirm, 2020).

Taxation of the Digital Economy and pushing fiscal boundaries

There is broad agreement that the international tax system has to be updated to suit
the global economy's digitalization. The OECD and the EU both released publications, and the
OECD later provided recommendations on how to distribute profits to nations where global
corporations trade or generate value. The OECD has advocated for a worldwide minimum
company tax rate. The two-pillar policy of the OECD is supported by the OECD/G20 Inclusive
Framework on BEPS. On October 12, 2020, the OECD released the blueprints for the specific
components of the recommendations. They announced broad-based agreement through the
Inclusive Framework on July 1, 2021, following a huge volume of technical effort and
discussion, while elements of the plans remain subject to political agreement as well as
technical design. Over 130 members have already gained broad agreement, with an
 28

aggressive timeframe for implementing these new regulations beginning in 2023. The G-20
also endorsed the proposal on July 10, 2021, and entrusted the Inclusive Framework with
the monumental job of finalizing the specifics and developing an implementation plan by
October 20, 2021. “Rethinking the World Tax System – The OECD and What a Delay in Global
Agreement May Mean,” detailed how the OECD's delay in global agreement raised the
probability of unilateral measures proliferating and probable adjustments in tax authority
behavior. Since then, we've seen a rise in the number of governments exploring and
implementing tax policies. The European Union has now stated that it will not proceed with
its digital levy at this time, and we anticipate it to keep to that promise and instead put its
efforts on, for example, the carbon border adjustment mechanism to increase its own
revenues for the EU Commission budget. It remains to be seen if other nations would follow
the EU's lead in rescinding or hastening the repeal of digital taxes, including DSTs. We
anticipate that many will wait until the OECD's two-pillar strategy is enacted into law, and
even then, such taxes may continue to be appealing methods for emerging nations to collect
money.

• As early as June 2021, the G-7 central bankers issued a historic declaration in favor of
both Pillars One and Two of the OECD proposal, calling for approval on both pillars
concurrently. G-7 Finance Ministers Announce Approval for Global Minimum Tax and
New Allocation Rules, according to BDO.
• Following G-20 approval for the proposal, we look at the technological as well as
political concerns which remain unsolved in G-20 backs G-7 support for minimum
guaranteed tax and new distribution criteria – what is the true impact? considering
there are still many questions left unanswered

The G-7 and G-20 have pledged to offer international co - operation for the execution
of the proposed international tax regulations, as well as to overturn the numerous imposed
sanctions that have grown in recent years. The latest EU declaration is pertinent here. It is
expected that the Inclusive Framework's initiative for the two Pillar approach will have to
specify how participating nations must abolish these. Addressing the several unresolved
 29

issues by October 2021 appears to be an extremely ambitious aim. For instance, the mindset
of independent states, that may have less than that to gain from the plans as they presently
stand and it may confront potential constraints on their capacity to adopt unilateral actions,
may be insurmountable. Other critical issues to address include the firms and industries that
would be included by the plans, the levels which would be applicable for local officials, how
the systems would be monitored and controlled, and how double taxation would be
prevented.

Pillar One: The Allocation of Taxing Rights

The OECD's Integrated Solution to Pillar One problems would grant nations the power
to tax multinational businesses' earnings (whether or not they have a base in a specific
country) depending on estimating a potting medium of revenue in conjunction with
strengthened dispute management and resolving procedures. The strategy departs from the
lengthy notion of “profit where the firm has a physical presence,” which was the foundation
of the international taxation system, and is perhaps the most important shift in the
international tax infrastructure in the last hundred years.

The approach provided a reattribution of worth to market jurisdictions from which a

business's sales are generated, along with an intention to simplify some parts of transfer
pricing laws. Initially, the ideas concentrated on consumer-facing firms and those offering
automated online services. However, the United States has requested that the scope be
broadened to encompass firms from all industries, subject to a (possibly large) worldwide
sales level. There appears to be growing support for heading in that direction, partly for the
sake of simplicity and partly in acknowledgment of the international economic growth and
rising digitalization.

Pillar Two: Global Anti-Base Erosion (GloBE) Proposal

The Pillar Two plan is intended to avoid such a “race to the bottom” on global business
taxes, in a bid to limit motivations for global corporations to move revenues to low- or zero-
 30

tax jurisdictions. This is especially true for intangible assets, but it is also observed in
businesses that earn profits via intra group financing. This plan would impose a minimal
effective rate on business operations. The G-7 communique recommends focusing on a
minimum corporation tax rate of "at least '' 15%, however not all territories agree on that
figure.

Taxation of digital firms seen hindered by policy, lack of infrastructure

According to the Philippine Institute for Development Studies (PIDS), the

government's plan to tax the digital economy is being hampered by factors such as the lack
of a standard regulatory framework for online platforms and a lack of adequate information
technology infrastructure. According to Janet S. Cuenca, a former research fellow at PIDS, in
a discussion paper titled “Emerging Tax Issues in the Digital Economy: A Review of
Literature,” addressing these “major policy gaps” is critical before the digital economy can
be successfully taxed. According to the report, one fundamental gap is estimating the extent
of the digital economy in order to determine the industry's potential tax base and collect
income without excessively burdening the sector.

The problems and challenges associated with taxing the digital economy come from
its complex and varied character. According to the research, “developing a consistent
understanding and assessment of the scale and effect of the digital economy is important in
developing a tax regime.” According to the study. The Philippine Statistics Authority began
quantifying the extent of the digital economy in relation to total economic production in
August 2018, but additional data is needed, according to the agency. An option that may be
taken is to alter the regulatory and legislative environment to encourage more firms to enter
the information and communication technology industry, therefore increasing competition.
“There is now no legislative framework in place to govern business platforms and encourage
the development of new digital goods. Furthermore, there is a lack of common licenses
granted throughout LGUs, impeding the fast deployment of necessary infrastructure,” it
noted. The Philippines' digital infrastructure deficit must also be rectified, since internet
 31

connections are deemed sluggish and costly. Consumers must also be informed about the
developing digital economy and protected from cyber threats.

“The potential and challenges that the digital economy presents are especially
relevant for developing nations like the Philippines. As a result, it is regarded as important
for the Philippine government to eradicate the hurdles and challenges, as well as solve the
highlighted policy gaps, in order to fully reap the advantages of the digital economy,” PIDS
stated. Another option that may be taken is to alter the regulatory and legislative
environment to encourage more firms to enter the information and communication
technology industry, therefore increasing competition. “There is now no legislative
framework in place to govern business platforms and encourage the development of new
digital goods. Furthermore, there is a lack of common licenses granted throughout LGUs,
impeding the fast deployment of necessary infrastructure,” it noted. The Philippines' digital
infrastructure deficit must also be rectified, since internet connections are deemed sluggish
and costly.

Alternative Approaches to Taxing the Digital Economy

Much controversy has surrounded the issue of taxing the digital economy but despite
this, essential information about the necessity of such a measure has emerged in recent
years. According to González (2020) in an article titled "Alternatives to Tax the Digital
Economy", the digital economy’s accelerating growth is an effect of the ongoing COVID-19
pandemic, and as market share for the digital industry expands, so does the interest of
political authorities to use it as a source of revenues especially to lessen the economic
consequences the global landscape is currently experiencing. At present, two forms of
taxation are being considered as alternatives in implementing an international tax system.
These taxation alternatives are colloquially referred to as “Google tax” and “Netflix tax”.

The so-called “Google tax” is an indirect tax imposed on multinational corporations

engaging in online advertising services, online brokerage services, and data transmission
services earning gross revenue of over 750 million euros or 870 million U.S. dollars per year.
 32

This alternative surfaced as a result of a lack of agreement within the OECD on the
designation of this particular digital group as a permanent establishment for purposes of
corporate income taxation. On the other hand, the “Netflix tax” is a charge on digital services
consumed within the customer’s home country, but provided by outside non-resident
companies. For this alternative, income tax and VAT can be applied as measures to
implement such a taxation system.

Some countries that have considered applying the “Google tax” and “Netflix tax”
systems include European nations as well as countries in Latin America. “Google tax” is seen
as a more viable option by European countries as the primary motivation of this measure is
to collect funds. However, Latin American countries opt for the “Netflix tax” because avoiding
unfair competition between local companies and non-resident entities is their priority,
especially considering that local companies are already being taxed for their digital services.

Aside from the “Google tax” and the “Netflix tax”, a nontraditional taxation system is
also raised as another alternative. This taxation scheme can be observed from Brazil’s efforts
to implement a tax reform on electronic commerce. The purpose of this tax is to take
advantage of the increasing digital purchases among Brazilian consumers and increasing
revenues from e-commerce businesses. This system is still a proposal, but it has been
identified to be a 0.2% consumption tax with a broad tax base, having a high power of
collection, and ensuring fiscal sustainability to be achieved by reducing payers’ income tax
and corporate social security contributions. India has also implemented a similar system
called the Goods and Services Tax (GST) which imposes an 18% tax on digital services
provided by both resident and non-resident businesses. However, the taxable facts for non-
resident businesses will still depend on the type of transaction conducted.

Options for Taxing the Digital Economy

Bush and Thrasher (2020) further described in their online magazine article titled
"Taxing the Digital Economy: Options, Trade Considerations, and a Solution" that over the
years, various efforts have been undertaken to determine the possibility of imposing tariffs,
 33

corporate income tax, or value-added tax (VAT) on the digital economy, particularly on
digital services. Briefly presenting where each tax option will be imposed on, tariffs are
focused on “electronic transmissions,” while VAT is imposed on services and intellectual
property where the provider is a non-resident company or entity not situated in the
jurisdiction of taxation, and income taxes are focused on how to apply an income tax to e-
commerce or the digital economy.

The first taxing alternative stated by Bush and Thrasher (2020) is corporate income
taxes for the digital economy. This encompasses OECD’s proposed unified approach where
user participation or user-generated data, as well as market intangibles, are valued and
institutions with a significant economic presence within a country are taxed. OECD’s unified
approach encompasses highly digital and consumer-centered business models, as well as
automated digital entities that do business on social networking platforms or provide
services such as online search engines, online gaming, digital content streaming, online
advertising, and cloud computing. The authors do note, however, that most developed
countries should be equipped and ready to adopt this tax approach to ensure its successful
implementation.

The next option mentioned by Bush and Thrasher (2020) is the implementation of
digital services tax (DST) in lieu of imposing a corporate income tax on the digital economy.
Although proposed as an alternative to corporate income taxes, DSTs are officially
considered transaction taxes and therefore do not carry the same characteristics as income
taxes. In the same manner, as tariffs are levied on imported products, DSTs are placed on
gross income. They are calculated as a proportion of income generated by specific revenue
sources. DSTs are aimed at one or more of four income streams including the selling of data
collected by an internet provider, the provision of an internet marketplace, the development
of an internet-user market, and specific services using internet advertising.

The third taxing option is imposing a value-added tax (VAT) on the digital economy.
VATs have mostly been utilized in the digital economy to levy tax on distant service providers
who provide cross-border services. When it comes to applying VAT to products transferred
 34

digitally, however, no new laws are required because the existing VAT rules imposed are
sufficient. The OECD has been working for years to develop universal rules for applying VAT
to service and IP providers. VAT collection on cross-border transactions may be split into
two categories namely business-to-business (B2B) transactions and business-to-consumer
(B2C). The guidelines imply a method of utilizing a simplified registration procedure for B2C
transactions, in which the distant seller registers with the source nation before doing
business there, and then collects and remits the VAT due. Furthermore, adopting a reverse
charge method in B2B transactions, which forces the importing firm to impose the VAT
charge on itself, is also a recommendation stated by the OECD VAT/GST guidelines.

The Taxation of Cryptocurrency

According to David Rodbeck (2021), Crypto taxes are based on a 2014 Internal
Revenue Service (IRS) ruling that determined cryptocurrency should be treated as a capital
asset (like stocks or bonds), rather than a currency (like dollars or euros). This decision has
major ramifications for people who own crypto, as it opens them up to more complicated
taxes. When capital assets are sold for a profit, they are taxed. When you use bitcoin to buy
goods or services and the quantity of cryptocurrency you spend has increased in value above
what you bought for it, you must pay capital gains taxes on the difference. Although there are
different kinds of acquiring income in cryptocurrency, one of which is Crypto mining, you
may be compensated with new crypto tokens in return for your work but you still must pay
taxes on the whole value of bitcoin acquired from mining.

There are still questions that the community is curious about and that is do you still
pay taxes on crypto transactions and the answer is yes. According to Kushal Agarwal (2021),
Having Bitcoin as an example, The fact that Bitcoin is classified as an asset clarifies its tax
implications. The IRS has made it necessary for taxpayers to record all bitcoin transactions,
no matter how small the value. Even though your transactions are small, the amount of
income you gained in crypto is still taxable and monitored by the IRS. Meaning sale of
Bitcoins, mined personally, to a third party, using mined tokens to buy goods or services.
 35

Using Cryptocurrency, bought from someone, to buy goods and services are still considered
taxable.

Crypto Trading is also taxed but in a condition. Things start becoming taxable when
you use crypto as a method of exchange. This includes selling your crypto for U.S. dollars,
exchanging one cryptocurrency for another, buying Ethereum with Bitcoin, for example or
paying for goods and services with crypto. “Whenever you sell the investment, or exchange
the investment for another investment, that is when a taxable transaction happens,” says
Daniel Johnson, a financial advisor and founder of RE|Focus Financial Planning (2021).
“You’ve got to be careful if you’re doing a lot of trading. If you’re going in and out of different
types of cryptocurrency, every single time you place that trade, it is a taxable event.”

Problems faced by the government in taxing Cryptocurrency

The common problems that the government is facing today is regulating

cryptocurrency and along with their work they encounter problems such as tax evasion.
According to Rachanee Prasongprasit (2018), Ever since cryptocurrencies started to gain
popularity, policymakers in many countries have been debating how to design the tax system
and regulate transactions in digital assets. Surprisingly, the positions of governments differ
widely, in part because there is no multilateral agreement covering this new realm.
Essentially, a government must decide whether it wants to maintain the neutrality of its tax
system by imposing the appropriate type of tax at the appropriate time, or whether it wants
to discourage the use of cryptocurrencies by imposing unusually high tax burdens. While
some governments handle cryptocurrencies similarly to traditional forms of foreign
exchange, others classify them as transferable assets for tax reasons.

According to Greg Iacurci (2021), Cryptocurrency can lead to tax evasion because It
largely comes down to lax reporting requirements, according to tax experts. The IRS may not
be able to trace crypto income or transactions if they go unreported by exchanges,
businesses and other third parties. And that means the income may not be taxed. “No one
has put out clear rules on it, so there’s a lot of non-reporting going on,” according to Jon
 36

Feldhammer, a partner at law firm Baker Botts and a former IRS senior litigator. “Any time
you create a path of non-reporting, you create a way to benefit from tax fraud in an
untraceable or a much-harder-to-trace way,” he said. With that being said the IRS is
completely dependent on the report made by the investors of Crypto. The disadvantage is
that the IRS can only track their income made by the statements said or reported by the
investors. Crypto is fast becoming an alternative to cash as more merchants accept bitcoin
and other virtual currencies as payment but cash is more heavily regulated. With this the IRS
is taxing the income made by the investors made through Crypto.

There have been actions made by different countries in addressing this problem, and
one of those countries is Thailand. Thailand trails behind many other countries in dealing
with the emergence of cryptocurrencies. Tax became a topic of discussion only when a local
firm launched an initial coin offering (ICO). Nonetheless, private companies have entered the
fray without knowing how they should realize income for tax considerations. In fact, they
have no idea what kinds of taxes they might be subject to. There were two emergency
decrees approved, one to regulate transactions, and the other on taxation rules for what the
decrees refer to as "digital assets". This shocked the market as the announcement was
sudden and for this was meant to discourage investors in attempting to invest in
cryptocurrencies. True, the various properties of cryptocurrencies make it difficult to
develop a single taxation law for all digital assets, but the initial draft appears to ignore this
aspect. As a result, the use of ICOs to generate cash may get caught in the net, making them
expensive or impossible from a tax standpoint.

Digital Tax in other Nations

Perhaps the most visible change in the postwar global economy has been the global
expansion of digital platforms, products, services, and intellectual property. These
inventions have boosted global wealth and growth, and they have made their way into the
homes and, indeed, the hands of people all over the world. The digital economy is a term of
art that attempts to accurately describe the economic activity created by technologies that
are defined in part by their ease of transmission. These qualities pose potential problems for
 37

tax collectors, which are highlighted by the simple observation that the internet recognizes
fewer boundaries than tax authorities. Because these firms have developed into very
lucrative international organizations, lawmakers have paid more attention to them.

Other countries are not unfamiliar with the notion of a digital tax. As of March 2021,
there are 26 countries with DSTs or equivalent direct taxes on the digital economy, however
these regulations differ greatly between countries. Argentina, Austria, Costa Rica, Germany,
Greece, Hungary, India, Indonesia, Italy, Kenya, Malaysia, Mexico, Nigeria, Pakistan,
Paraguay, Poland, Sierra Leone, Spain, Taiwan, Tunisia, Turkey, the United Kingdom,
Uruguay, Vietnam, and Zimbabwe are among these countries (Gray & Huddleston, 2021).
According to present international tax regulations, multinational corporations usually pay
corporate income tax where production happens rather than where consumers or, more
particularly, users are situated. Some argue, however, that because of the digital economy,
firms (implicitly) earn money from customers abroad yet are not liable to corporate income
tax in that foreign nation since they do not have a physical presence. To address these issues,
the Organization for Economic Cooperation and Development (OECD) has hosted
discussions with over 130 nations to modify the worldwide tax system. The present plan
would compel multinational corporations to pay some of their income taxes in the
jurisdictions where their customers or users are situated. A deal is likely to be reached by
mid-year, according to the OECD (Asen, 2021).

Aside from DST we also have VAT and GST. In different countries, the tax rate for VAT
also varies, implications and requirements also vary in different countries. According to the
European Commissions in 2018, In the EU, Digital firms who sell to European customers are
required to apply, collect, and pay VAT on all client invoices. If the companies sell to VAT-
registered firms, they are exempt via a reverse-charge program; however, they must have
their customer’s VAT registration information. When selling to companies that are not local
to the EU, there is no such thing as an “EU” VAT rate. The rate a company must charge is the
rate applicable in the nation where the consumer resides. This implies that a company must
be set up to apply the relevant VAT rate to the appropriate nation. In the EU, they also offer
a hassle free way of collecting and remitting VAT to each separate jurisdiction. The company
 38

may set up a MOSS (small one-stop shop) to handle their VAT returns and distribute what
they’ve collected.

Implications of Digital Tax in other Nations

According to Schulze and Marel in 2021, “There are various reasons as to why not all
nations in the EU have adopted the Digital Tax. In this study he mentioned that differences
in performance and competitiveness have an influence on how a digital tax operates: who it
taxes and how the local economy responds to a tax.” When we zoom in on five EU countries
(Austria, France, Italy, Spain, and the United Kingdom) that have adopted Digital Tax, we can
clearly see a conclusion forming. When we compare their trade competitiveness to that of
the United States, and even the whole world, we can observe a clear decline. According to
Schulze and Marel in 2021, their competitiveness in digital services has worsened over the
last decade and a half. They have demonstrated little zeal in their digital services markets,
resulting in a drop in the sector's trade performance during the previous almost 15 years.
When it comes to Economic Competitiveness in Digital Services, we can observe that the
development of digital services output has been continuously negative for the remainder of
the EU, regardless of whether fast-growing nations in Central and Eastern Europe are
included or not. The number of individuals employed in digital services has increased in all
European nations. However, the five countries mentioned have not expanded as quickly.

As for the implications of Digital Tax in the EU, these implications are not only for the
multinational corporations but also for the wider audience. According to Bunn in 2018, “The
European Commission's new effort on EU digital taxes will have an impact on firms engaged
and functioning in the digital economy, particularly international businesses operating in the
EU. Furthermore, it will have an impact on tax compliance costs, tax revenues, the
competitiveness of EU digital firms, and, ultimately, consumers.” The future proposals for
the digital tax may increase the danger of legal fragmentation and may encourage additional
EU Member States to implement national digital tax policies in the interim. Furthermore,
companies are concerned that unilateral national or European actions would result in double
taxation, market distortion, and retaliation from neighboring nations. Both the EU and the
 39

OECD measures are expected to target automated digital services and consumer-facing
enterprises, such as search engines, social media platforms, online marketplaces, and firms
that offer products and services to customers online. It has been clarified that intermediate
items and consumer product components would be exempt, with some of them remaining
susceptible to possible exclusions. In terms of revenue thresholds, firms covered by the
initiatives will have revenues of at least €750 million, with sales in each nation exceeding a
particular revenue level. However, the specifics of the prospective initiative's scope are still
being negotiated within the OECD. Similarly, while the EU proposal is still in its early stages,
one can assume that the OECD standards will be translated into minimal requirements in the
EU proposal.

According to Bunn in 2018, “While the digital tax measures are intended to target
major digital firms, their impacts are likely to be seen more broadly.” When faced with a new
digital tax, businesses can incorporate it into their business model in a variety of ways. As
seen by the implementation of unilateral digital taxes in several European nations, some
firms may choose to absorb the higher expenses themselves, while others may choose to
pass on the additional costs to their business clients or consumers through price hikes.
 40

Theoretical Framework:

Figure 1: Fischer tax compliance model

The Fischer tax compliance model provides a framework for analyzing the impact of
socioeconomic and psychological factors on a taxpayer's compliance choice. In his expanded
model (Fischer Model), Fischer and associates (Fischer et al., 1992) categorize these factors
into four groups: (ii) demographic (e.g., age, gender, and education), (ii) noncompliance
opportunity (e.g., income level, income source, and occupation), (iii) attitudes and
perceptions (e.g., tax system fairness and peer influence), and (iv) tax system/structure (e.g.
complexity of the tax system, probability of detection and penalties and tax rates). As a result,
Fisher's tax compliance model combines economic, social, and psychological aspects to
create a comprehensive model.

Demographic Variables
According to the Fischer model, demographic factors have an indirect impact on tax
compliance through their effects on possibilities for disobedience, as well as attitudes and
perceptions.
 41

Age
The age of the taxpayers is a frequent demographic variable. It has been shown that
there is a relationship between age and tax compliance (Widianto, 2015). Furthermore,
statistics from the Internal Revenue Service's taxpayer compliance measurement program
(TCMP) show that "noncompliance is substantially less prevalent and of a smaller scale
among householders in which either the head or the head's spouse is over 65.". Young
taxpayers, on the whole, are more prepared to take risks and are less sensitive to penalties.
Age is also a factor for purposeful evaders, according to the 1997 Arkansas tax penalty
amnesty program, with younger taxpayers being less cooperative.

Gender
Studies comparing tax compliance of male-owned and female-owned enterprises
found that female-owned enterprises are more likely to comply with the law (Yimam and
Asmare, 2020). Females are also significantly more tax compliant than males when it comes
to filing income tax returns according to a paper by Kangave, Waiswa, and Sebaggala (2021).
However, according to Houston and Tran (2001), women conduct a larger percentage of tax
evasion than males. Further research also shows that males are more prone than women to
try to avoid paying taxes. Men were more likely than women to under-report their income,
according to a survey of over 1,500 persons in the United States, the United Kingdom,
Sweden, and Italy (Bruner, S’attoma, and Steinmo, 2017).

Education

According to Mascagani (2020), there is now good evidence that poor levels of tax
compliance are caused by a lack of taxpayer understanding. When taxpayers don't grasp the
tax system, they're more likely to become perplexed, spend more time trying to figure out
their responsibilities, and make mistakes that might result in penalties. The costs of
compliance (the cognitive, time, and financial expenses that taxpayers incur as they try to
comprehend and comply with the system) have been shown to be substantial and regressive.
The burden is borne primarily by small taxpayers. Compliance expenses might sometimes
 42

result in people paying more tax than they should. This leads to feelings of dissatisfaction
and injustice, which has a detrimental impact on compliance.

Noncompliance Opportunity
Noncompliance opportunities can be found in the Fischer model. Income level, source
of income, and occupation all have an impact on taxpayer compliance, as do attitudes and
perceptions.

Income Level
Almost every theoretical model suggests that as income increases, tax evasion should
rise across most income levels (Fieldhouse, 2013). According to Kassa (2021), a variety of
factors may motivate taxpayers to engage in tax evasion. Major factors include tax
knowledge, tax morale, the tax system, tax fairness, compliance cost, attitudes toward
behavior, subjective norms, perceived behavioral control, and moral obligation. Other
factors that influence taxpayers' willingness to engage in tax evasion include capital
intensity, leverage, fiscal loss, compensation, profitability, contextual tax awareness, interest
rate, inflation, average tax rate, gender, and ethical tax awareness. The higher the income
level, the higher the possibility it is for people to engage in tax evasion most especially to
those people from developing countries. According to Houston and Tran (2001),
respondents in the lower income group have a lower proportion of tax compliance by under-
reporting income and over-claiming expenses than their higher income counterparts.

Income Source
Taxpayers differ in terms of their ability to overstate expenses and understate
income. Self-employment and income sources that are not subject to withholding taxes
provide a greater opportunity for tax evasion. BĂRBUŢĂ­MIŞU (2011) contends in one of the
first tax compliance studies that income source has a significant impact on tax compliance.
Moreover, self-employed taxpayers are more likely to commit various forms of tax
noncompliance since they have more opportunities for tax evasion, and these opportunities
may increase as the number of different income sources increases. As a result, in tax
compliance decisions, the level of income may interact with its source.
 43

Occupation
This refers to a person's earnings or employment activity. Gottschal and Gunnesda
(2018) stated that tax evasion is a white-collar crime committed by a respectable and high-
status individual while performing his or her job. Sutherland exposed crime committed by
people who were perceived as almost superior, and who did not appear to need to offend in
order to survive. Professionals and businesspeople frequently engage in serious wrongdoing
and harm with little fear of being prosecuted. Sutherland's groundbreaking challenge to
mainstream criminology has inspired many researchers. Furthermore, according to TCMP
data, "among all sole proprietors, those who engaged in sales from fixed locations (car
dealerships, stores, restaurants, etc.) understated taxes by the greatest percentage"
(Andreoni et al., 1998)

Attitudes and Perceptions

According to the Fischer model there are 2 major considerations for altering
taxpayers’ attitudes and perceptions to tax compliance. These are the fairness of the tax
system and peer influence.

Fairness of tax system

Tax administrators and taxpayers alike agree that growing discontent with the
fairness of the tax system is one of the key drivers of rising tax disobedience. Tax equity
consists of at least two distinct dimensions. One dimension appears to entail trade equity,
the advantages obtained in exchange for tax money paid, and the second dimension is the
equity of the taxpayer's burden in comparison to that of other individuals (Forum on Tax
Administration Compliance Sub-group, 2004). Thus, taxpayers' feelings of unfairness in the
tax system may reflect their perceptions that they are overpaying taxes in relation to the
value of government services or in comparison to what other taxpayers pay. Taxpayers' need
and ability to pay are one of the most important factors influencing their perceptions of the
fairness of the tax system. (Alleyne & Harris, 2017; Rantelangi & Majid, 2018). According to
Palil (2010) and Kirchgassner 2011), people who believe the tax system is unfair are more
likely to engage in tax evasion or negative compliance.
 44

Peer influence
Peer influences are important in tax compliance, but the study does not specify which
is more powerful: friends or family members. Peers are commonly characterized as a
taxpayer's associates, which might include relatives, friends, coworkers, and colleagues
(Alshira’h, 2019). Peer groups have a powerful impact on taxpayers' preferences, behavior,
and personal values (Puspitasari and Meiranto, 2014). With this in mind, Lefebvre et al.
(2015) said that it is important to observe and take into account the influences of a taxpayer’s
peers when examining their tax compliance behaviour. According to Chau and Leung (2009),
peer influences are mirrored in taxpayers' expectations regarding the disapproval or
approval of tax evasion,

Tax System/Structure
The magnitude of taxation is publicly known. In many developing nations, compliance
has been declining. One of the key reasons of this issue is a poorly constructed tax system
and structure. The complexity of the tax system, the chance of discovery and penalties, and
tax rates all impact the efficacy of the tax system, according to the Fischer Model.

Complexity of Tax System

As the tax code has gotten more complicated, complexity has been identified as a
possible cause of noncompliance with tax laws (Abdul and McFie, 2018). Excessive intricacy
in the tax regulations and numerous computations necessary are two characteristics of
complexity in the context of tax compliance choices. Taxpayers should be able to
comprehend the tax regulations that govern how they will be taxed. To improve tax
compliance, these tax regulations should be basic, intelligible, and transparent. In general, as
the number of criteria established by tax legislation grows, the complexity of the tax system
should grow. Abdul and McFie (2018) also suggest that the most important factor of tax
avoidance is complexity. The lower the amount of complexity, the lower the level of tax
evasion.
 45

Probability of Detection and Penalties

Higher audit possibilities and harsh fines, in general, encourage tax compliance. The
possibility that the tax authorities will uncover an individual's noncompliance and seek to
rectify the evasion is referred to as the probability of detection. Individuals usually want to
completely avoid paying their taxes, and the only reason they might not is if there is a non-
zero chance of getting detected (Mohdali, Isa, and Yusoff, 2014). The link between tax
compliance and the harshness of punishments is another major element impacting tax
compliance. The theory is that the threat of fines deters tax evasion. Doran (2009) notes that
setting up an effective mechanism to punish tax evaders is a critical step in encouraging tax
compliance. If disobedience can result in significant fines, taxpayers are more inclined to
comply.

Tax Rates
In the Fischer model, tax rates are the third key component of the tax
system/structure. According to a working paper by the International Monetary Fund, the
difference between a progressive and a flat tax rate is a key structural variable in tax
compliance behavior (Papp and Takáts, 2008). Further research on individual taxpayers in
Pakistan also reiterates that High tax rates are often connected to reduced tax compliance
(Hassan, Naeem, and Gulzar, 2021). The results of the study shows that the chance of
underreporting and the amount of underreporting are both positively related to the
marginal tax rate, using audited tax returns.
 46

Conceptual Framework:

Figure 2: Conceptual Framework

The first component in the Conceptual Framework is our study question, which is to
identify the factors that influence digital earners' and those engaged in unregulated online
activities' desire to pay tax. To achieve the research objectives, we categorize and analyze
the following factors: legal requirements for digital earners, the government's obligation to
digital and unregulated earners in terms of paying income taxes, and the benefits that digital
earners and those engaged in unregulated online activities receive if they pay their income
taxes. All of these aspects will be investigated in order to devise and implement a system that
encourages digital and online earners to create money for the government.
 47

Chapter 3
METHODS

Research Design

The research employs a descriptive research design for the study aims to find out
what factors affect the willingness to pay income tax among digital earners in Metro Cebu.
Globally and especially in the Philippines today, taxing the digital economy is a pressing and
relevant subject, which is why the research employs a descriptive research design in order
to observe and describe the behavior of digital earners when it comes to compliance and
willingness to pay taxes. Data will be collected through a standardized procedure of handing
out a survey questionnaire using Google Forms via various online platforms such as but not
limited to social media and conducting in-depth interviews via various online conferencing
tools such as Google meet. Ultimately, this research design supports the collection and
analysis of quantitative and qualitative data related to key factors that affect the willingness
to pay income tax among digital earners in Metro Cebu.

Research Environment

This study will only focus on getting data and respondents within Metro Cebu, which
the regional plans refer to as the principal urban settlement of the Central Visayas Region
(Mercado, 1999). It consists of Cebu City, the capital of Cebu, along with twelve surrounding
cities and municipalities. Though it's not yet legally defined, Metro Cebu is actually an
accepted term for an extended Cebu City.

The researchers decided to choose this area as the setting of the study because
according to a study conducted by Japan Bank for International Cooperation (2004), Metro
Cebu is the second international gateway and second largest urban area in the Philippines.
With the steady growth of population and increasing urbanization, it's a perfect environment
for development and income. It is the economic, trading and educational center of the central
and southern Philippines, besides developing as a distribution relay hub and a tourist area.
 48

The researchers saw the potential of the area and thought it was a good environment for the
study, considering the objectives to be achieved and resources needed to be acquired. It will
also be easier and more convenient for the researchers to get in touch with the digital
earners and online businesses operating in this pandemic.

Figure 3. Map of Metro Cebu

Research Respondents

The respondents for the research are primarily residents of Metro Cebu. Resident
Filipino citizens of all genders and ages are chosen to participate in the surveys and in-depth
interviews. Because the internet market is saturated, the researchers have opted to
concentrate their efforts on these specific individuals. They are certain that if a digital tax is
introduced in the Philippines, these people will be the most affected.
 49

• Online merchants - e-commerce merchants, often known as online merchants, are

people who sell items or services only over the Internet.
• Freelance workers or online freelancing - This industry focuses on self-employed
workers who are paid on a per-job or per-task basis, often for short-term work. The
majority of people involved in this industry are college, university, or other young
people who are unemployed but have access to the internet and can make excellent
money performing online freelancing utilizing talents they currently have – or skills
they can enhance over the internet.
• Online content creators - A content creator is in charge of distributing information
and materials across any platform or channel. In most cases, they are directed
towards a certain end-user/audience in specific situations. A content creator can
submit material in any format, including blogs, news, images, video, audio, email,
social updates, and other relevant information.
• Cryptocurrency traders - Cryptocurrency traders make money from short-term
fluctuations in the market price of cryptocurrencies, altcoins, and value tokens.

The researchers will survey 100 Metro Cebu residents, including Lapu-Lapu,
Mandaue, and Cebu City. In addition, they will conduct in-depth interviews with 8
respondents. All of the respondents must be from the aforementioned industries. All study
methods will be carried out online according to current health standards. The researchers
estimate that surveying 100 people and interviewing eight people will offer enough data to
analyze for this study. The researchers would want to use non-probability sampling, more
especially purposive sampling. This is due to their desire to reach a certain group of people:
online merchants, freelance workers, online content providers, and cryptocurrency traders.

Research Instruments
The researchers will formulate an interview guide specifically for the qualitative data
and a survey questionnaire for the quantitative data. The survey questionnaire will be made
to draw the necessary data for the quantitative study. The interview guide will be curated to
collect essential qualitative information needed for backing up the quantitative data. In
 50

addition, the survey questionnaires and interview guide will be presented by the researchers
via a mix of English and colloquial Bisayan to clearly express what the questions mean and
evoke more personal and honest information from the participants.

A. Survey Questionnaire
For the quantitative data, a survey questionnaire with multiple-choice
questions, open-ended questions, and a Likert scale will be utilized. The
questionnaire will be curated to acquire the necessary information assessing which
possible factors might have significant impacts on respondents’ willingness to pay
income tax as digital earners.

B. Interview Guide
For the qualitative data, the researchers will conduct online in-depth
interviews. The interview guide used in the IDI will primarily focus on the
respondents’ views and opinions regarding the proposed taxation among digital
earners. The questions used for the interview guide will be similar to the questions in
the survey, but as open-ended questions only and with the addition of follow-up
questions that will determine why the participants chose to answer in the way they
did. These interview questions will allow the researchers to gather and collect
relevant qualitative data that will serve as additional information in assessing the
respondents’ willingness to pay income tax as digital earners.

Research Procedures
The research being carried out is known as descriptive research since this study
intends to collect viable information regarding the willingness of digital earners to pay taxes
for the overall betterment of the Philippine economy. The proposed research topic has been
carefully selected and chosen according to the following steps:

1. With the rapid adaptation of technology when it comes to online learning and work
setting due to the COVID-19 pandemic, the researchers have observed that people are
finding multiple ways to earn income through the digital world by investing in stocks,
 51

cryptocurrencies, establishing online shops and the like. However, not all of these
income generating methods are regularized; hence, not all digital earners have the
burden to pay taxes and the researchers of this study want to know about the level of
willingness that these people have when it comes to paying tax.
2. The Statement of the Problem was finalized which is: The study is to determine the
factors that affect the willingness to pay tax for the digital earners and those engaged
in unregulated online activities and in terms of the following:
a. What are the legal requirements for digital earners?
b. How will the government oblige the digital and unregulated online earners to
pay their income taxes?
c. What benefits will digital earners and those engaging in unregulated online
activities receive if they pay their income taxes?
d. Based on the findings of the study, formulate a system that motivates digital
and online earners to start paying income taxes to generate revenue for the
government.
3. It is through the significance of this study that the researchers were able to identify
the key people involved who will largely benefit from this, namely: the Philippine
government and stakeholders, digital earners and the researchers of the study itself.
4. The scope and limitations of this study was then finalized as to focusing on resident
citizen Filipinos of all genders and ages, residing in Metro Cebu, especially digital
earners in the Philippines.
5. The gathering and citing of related literature in accordance with the chosen problem
statement of the study in order to provide more in-depth information that will be
used in identifying the key problems and possible solutions.

As to the qualitative research being conducted, the researchers observed the

following procedures:
 52

In-Depth-Interview (IDI)
In-depth-interview is a qualitative research technique which is used to conduct
intensive individual interviews where the number of respondents is limited and is more
focused on a specific product or objective. The in-depth interview is necessary because it
collects much more detailed data compared to other methods. So basically, it is a one-on-
one interview where the interrogator asks questions that require thorough and detailed
answers. The population size of our in-depth-interview is restricted to 10 respondents only.
The interview will be done online via Google Meet due to the restrictions caused by the
COVID-19 pandemic.

Pre-interview Stage
The researchers needed to gather possible prospects for this interview. That is why
based on the different target markets, some respondents, mostly working adults and
students, were informed ahead if they could participate in this activity. The marketing team
used social media platforms, like Facebook, Messenger, and Twitter, and direct messaging
to connect and acquire their target respondents. The team sent messages that contain the
instructions regarding the date, time and Google meet link of the interview. The respondents
were also told about the importance and purpose of the said interview.

Interview stage
In the interview stage, the interrogator of the group essentially starts with a greeting
and an introduction of herself and the rest of the members. Next, the researchers informed
the respondents about the goals and objectives of the research study and why their
participation is essential. After this, the researchers will ask permission from the
interviewee for them to record the interview, either video or audio. The researchers will
assure the respondents that the interview and all it comprises will be used for research
purposes only. After the introduction period, the interview was then conducted, following
the interview guide.
Post-interview stage
Subsequent to the interview stage, the respondents were given their incentives; in
our case, the incentives were beauty soaps. The respondents were given the opportunity to
 53

speak up and address their opinions and smart critiques regarding the product and the
interview. The interview ended by giving gratitude to the respondents for their time, effort
and cooperation.
As to the quantitative research being conducted, the researchers observed the
following procedures:

Online Survey
The researchers have decided to utilize online surveys as the secondary form in
collecting quantitative results. Conducting the survey online is one the most convenient way
to administer the survey for both the researchers and respondents since this online
platform; Google Forms, allows the respondents to answer in the most convenient way
possible; with this, respondents can fill out the questionnaires when they choose to end the
survey at their leisure. Time is maximized since the researchers do not have to personally
approach the respondents and ask for permission. The disadvantage however, is that
respondents may also choose to not answer this and the researchers would not know that
is why they allotted more people to answer this compared to the actual survey in case the
initial people who received the link to the survey forgot or did not answer.

Gathering of Data
This survey utilizes both primary and secondary data. For secondary data, the
researchers utilize online resources and will be citing them through APA citation. A list of
references used can be found in the bibliography section at the end of this research. For
primary data, the researchers will conduct an online survey through Google Forms for their
quantitative data. The online survey would require 100 respondents, utilizing the
convenience and stratified sampling method. The researchers would post the survey on
easily accessible digital avenues such as Facebook, Messenger, and Discord. People will be
asked to answer if they fall under our target respondent of digital earners, specifically those
who are online merchants, freelance workers, content creators, and cryptocurrency traders.
 54

For qualitative data, the research will conduct ten in-depth interviews (IDI) through
online meeting and video conferencing platforms. The respondents for this interview will
also be chosen by the stratified and convenience sampling method, as the respondents will
ideally fall under our preferred type of digital earner. The respondents will also be those
individuals who the researchers can easily contact and schedule an interview with. These
interviews will be recorded digitally for documentation purposes, and so that statements by
the interviewees would be easily quoted and summarized for the analysis of qualitative data.

Treatment of Data

The study will analyze responses with the statistical requirements established. After
obtaining data from the survey and interviews, coding, balancing, and presentation in
tabular form and then interpreted in tables and graphs, will follow. Likert scale is utilized to
collect data from the respondents. A Likert scale is a linear scale that is used to measure
respondents’ attitudes and opinions. Considered also are descriptive statistics, including
frequency count number, mean, percent, and rank.

Data from the scale will undergo Cronbach Alpha reliability testing to find out the
internal validity of the tests and make sure measures are stable. Measuring reliability
coefficient is crucial at this stage. For reference coefficient is a measurement of true variance.
Formula of Cronbach Alpha reliability testing is as follows.

Figure 4. Formula of Cronbach Alpha reliability testing

Part of the processing of an interview is to record emerging findings, the interviewer

keeps a recording and transcript from the interview for later review. Categorization and
organization of responses are by question and theme. Considered also are the frequency,
intensity, and specificity of responses. Analyzing the interview is as follows; Encode the
 55

interview notes into one document; Begin each interview or respondent with a new
paragraph; Categorize each paragraph according to what’s being discussed.
 56

REFERENCES
Agarwal, K. (2021, June 28). Are There Taxes on Bitcoins? Investopedia. Retrieved from
https://www.investopedia.com/articles/investing/040515/are-there-taxes-
bitcoins.asp

Ali, I., Mursalim, & Nasaruddin, F. (2020). Several factors influence the willingness to pay
taxes. Point of View Research Accounting and Auditing, 1(3), 57–70.
https://doi.org/10.47090/povraa.v1i3.41

Andrew Fieldhouse. (2013, April 2). A review of the economic research on the effects of
raising ordinary income tax rates: Higher revenue, unchanged growth, and uncertain but
potentially large reductions in the growth of inequality. Economic Policy Institute.
Retrieved November 3, 2021, from https://www.epi.org/publication/raising-income-
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APPENDICES
RESEARCH INSTRUMENT
Survey Questionnaire

Name (optional): ___________________________ Age (optional): ___________

Gender (optional): ___________

1. What kind of digital earner are you? Check all that apply
 Online Merchant
 Freelance Worker
 Content Creator
 Cryptocurrency
2. How much do you earn from your digital business or activities? Check all that apply
(optional)
 10,000 Php - 20,000 Php
 20,000 Php - 30,000 Php
 30,000 Php - 70,000 Php
 70,000 Php and above
3. Are you a registered taxpayer?
 Yes
 No
4. From your earnings can you tell which tax bracket do you belong to?
 1

 (n/a - P 250,000)  (P800,000 – P2,000,000)

 (P250,000 - P400,000)  (P2,000,000 – P8,000,000)
 (P400,000 – P800,000)  (P8,000,000 and beyond)
5. Were you aware of the obligations or tax rates you are supposed to pay?
 Yes
 No
6. Which of the following applies to your digital earning activities? Check all that apply
 Sole proprietorship
 Partnership
 Self-employed
7. What income tax benefits are you familiar with? Check all that apply
 Public roads and infrastructures
 Government Subsidies (E.G PWD Allowances)
 Free healthcare at public health facilities
 Free education at public schools
 Tax Deductions
 Easier Loans Processing
 Public Safety and Security
 Other (Please Specify): ________________________
8. Other than those mentioned above what would you like to receive from paying taxes?
_____________________________________________________
9. As a taxpayer consistently paying taxes would you prefer having tangible or intangible
benefits?
 Tangible
 Intangible
 All of the above
10. What income tax benefits were you able to receive? Check all that apply
 Public roads and infrastructures
 Government Subsidies (E.G PWD Allowances)
 Free healthcare at public health facilities
 2

 Free education at public schools

 Tax Deductions
 Easier Loans Processing
 Public Safety and Security
 Other (Please Specify): ____________________

Below is a list of statements dealing with your general feelings about willingness to pay
taxes. Please indicate how strongly you agree or disagree with each statement by checking
the appropriate boxes.

Strongly Strongly
Statement Agree Disagree
Agree Disagree
1. I am more willing to pay my taxes if I
know the laws and rules about taxes.
2. If the law does not explicitly mention a
tax on the source of my income, I will
not pay my income tax.
3. If the law is vague about its tax on my
source of income, I will not pay my
income tax.
4. The law states that all income must be
taxed. Even if it does not specifically
mention the type of activity, I am
doing to earn income, I will still pay
income tax.
5. I am more willing to pay taxes if I
believe I can personally benefit from
doing so.
6. I am more willing to pay taxes if there
is an assurance that benefits will be
given.
7. If I don’t think I will benefit from
paying taxes, I will be less likely to
pay.
8. If I’m not sure about the personal
benefits I will receive, I will be less
likely to pay taxes.
9. Even if I don’t personally benefit from
it, I will still be willing to pay my taxes.
10. I am more willing to pay my taxes if
there is a punishment for not paying
them.
 3

11. I am more willing to pay my taxes if I

know that punishment or penalty for
not paying will be strictly enforced.
12. If I believe that other people can avoid
paying their taxes without
punishment, I will be LESS likely to
pay my taxes.
13. Even if the punishment or penalty for
not paying your taxes is NOT enforced,
I will still pay my taxes.
14. If I think I can afford to pay the fine or
penalty for not paying my taxes, I will
be more likely not to pay them.
15. I am more willing to pay taxes because
I believe it is morally ethically right.
16. I am more willing to pay taxes because
I understand that it is good for all of
society.
17. I feel guilty if I do not pay my taxes.
18. I am more willing to pay taxes because
it is my duty as a citizen of my country.
19. I don’t think it is fair for my earnings
to be taxed.
20. I am more willing to pay my taxes if
my friends pay their taxes as well.
21. If my friends skip paying their taxes, I
am more willing to also AVOID paying
my taxes.
22. I feel more motivated to pay my taxes
when I know that the people around
me are paying theirs too.
23. Even if the people around me practice
tax avoidance and evasion, I will still
pay my taxes.
24. If the people around me often don’t
pay their taxes, I will also be LESS
likely to pay my taxes.
25. I am more willing to pay my taxes if I
believe that my taxes are being spent
wisely by the government.
26. I am more willing to pay my taxes if I
can feel the effects of taxpayers’
money in my life.
27. I am more willing to pay my taxes if I
can see the government using
 4

taxpayer money for public

infrastructure, services, and
improvements.
28. If I think that the government is
corrupt, I will be LESS likely to pay my
taxes.
29. If I believe that government officials
put taxpayer money in their own
pockets, I will be LESS likely to pay my
taxes.
30. I am more willing to pay my taxes if
the payment process is convenient and
efficient.
31. If tax payment offices have good
customer service, I will be more
willing to pay my taxes.
32. A slow, inconvenient, and inefficient
tax collection and payment service
would make me NOT want to pay my
taxes.
33. If I feel like paying my taxes in tax
offices would be a waste of time, I
would rather NOT pay my taxes.
34. Even if the process and service are
slow or inconvenient, I will still be
willing to pay my taxes.

Interview Guide (will not be shown to participants)

Knowledge and Legal Obligations
1. How much do you know about taxes? Are you well-versed or new?
2. Is the information needed for tax payments readily available? If not what can you
suggest to make information dissemination easier?
3. Do you know that it is your obligation as a Philippine citizen to pay taxes?
4. Are you aware of the consequences and penalties for failure-to-file taxes? What do
you feel about those penalties?
 5

Benefits Received from Tax

1. Would you pay taxes if benefits are not assured to be given? Would it be better to
see actual photos and project updates of government projects?
2. If you are paying taxes religiously do you receive personal benefits from the
government?
3. To reinforce the law, benefits are given to taxpayers so that they would always pay
taxes, as a taxpayer were you able to identify any public benefits from the
government? If not, would this affect your decision in paying tax religiously?
4. Do you think you are paying too much compared to what they receive in
government services?
5. What are the ideal types of benefits that you wish to receive once you pay taxes?

Enforcement of Punishment or Penalty

1. Do you think there is enough enforcement with the existing tax laws?
2. Do you think the existing penalties are too soft?
3. Have you ever experienced penalties from tax violations? What was your experience
like?
4. What penalties can you suggest in order to discourage people from tax evasion?

Ethical and Moral Attitude

1. Is evading taxes an acceptable behavior in society? Why or why not?
2. Are you aware that paying taxes can help Visa Applications and Loan approvals?
3. Do you consider paying taxes as a sacred duty as a citizen?

Peer Pressure
1. Do the people around you like friends, family members, or business partners
influence you to pay taxes?
2. Tax evasion is a current issue at this current day, in your opinion does putting peer
pressure on taxpayers improve and address this issue?
3. Do you think that peer pressure is a good motivator for taxpayers? Why or Why
not?
 6

Perception of Government Spending

1. What is your overall perception of the government? Is it corrupt, improving, or the
best it has ever been?
2. What do you feel when you see news of government corruption or misconduct?
(show a new report before asking)
3. Are you discouraged to pay your taxes after hearing the news report?

Quality of Tax Collection Services

1. Do you know the specific forms and documents you have to have for filing tax?
2. Do you think the Bureau of Internal Revenue can find out if you are doing your
taxes?
3. How much time do you usually spend in BIR when processing your papers (related
to tax)?