From Rejection to Revolution: My Journey with Babylon2K and the Future of Digital Economy in RP

By: Michael L. Aguirre, Founder, Babylon2K

I remember the first time I drew up the fine print of a revolutionary online accounting-based work order system while on a plane from an international business trip. Back then, I remember thinking about how the journey to get to where we are now was not without its challenges.

Rejection became an ally when I first pitched my idea for our Firm’s affiliation to several renowned networks. Despite my dream of creating a more efficient and streamlined solution for accounting processes, my firm was initially dismissed as too small and inexperienced in the industry. Regardless, my vision never wavered.

Taking the challenges as an opportunity to focus on expanding my firm's reach and credibility, I tapped reliable partners to help out. These partners worked tirelessly with me to establish a broader network that eventually built a pool of talented professionals, eventually leading to the successful establishment that Babylon2K is today.

Saying everything pays off with determination and resilience would be an understatement, but the same would define our bottom line.

The evolution of digital economy in the Philippines

Like how the Babylon2K journey materialized, so did the same stories go for digital tech and the Philippine economy. However, in the time of Web3, e-commerce, cryptocurrency, and blockchain, among many others, most of us view the value of a real currency. Along with that change of perspective comes that learning curve everyone must go through to optimize investment potential in today's digital economy.

As a practitioner and proud member of UHY International, I have been closely monitoring the Bureau of Internal Revenue (BIR) and other regulators' updates on various digital tax regulations in the Philippines. The taxation landscape for digital businesses, particularly for non-resident foreign corporation providers (such as Facebook, Netflix, and Google), has been evolving, and it is crucial to stay updated to comply with the tax regulations.

However, there are ways to manage the amount of tax owed on the property transfer if you are partnering with the correct tax firm. One such method is through a living will (inter vivos), which is still considered as a will that is subject to probate. This practice entails a legal agreement wherein a couple (let's call them Mr. and Mrs. M in this case) can divide their estate among their three children while they are still alive rather than waiting until after the testator passes away. Only one has the right to sign the agreement as joint wills are not allowed in the Philippines. Nonetheless, opting for such a process can reduce the overall estate tax liability by considering the transfer as a donation while the signee is still alive.

There's also the option to manage the estate tax by taking advantage of the exemptions provided under Philippine law. For example, the Philippines has a Php 5 million standard deduction and a Php 10 million maximum allowed deduction for the family home for residents and citizens of the country, which can be applied to reduce the value of the property subject to tax.

In general, non-resident foreign corporation providers who do not satisfy the permanent establishment rule are subject to a 25% final withholding tax. This rate can be reduced subject to tax treaty relief application. However, if such a rule is breached, these foreign providers are treated as if they are doing business or trade in the Philippines. As a result, they are subject to the local taxation rules and regulations.

For Philippine-registered online intermediaries and providers (such as Lazada, Shopee, Grab, FoodPanda, Coins.ph, among others), the regular taxation rules apply. This includes direct and indirect taxes, invoicing requirements, and the withholding tax agent's obligation in accordance with BIR's Revenue Memorandum Circular No. 55-2013.

I have found how important it is for every taxpayer to stay up-to-date with the tax laws to avoid potential penalties and ensure their full compliance on digital-related taxation. Not keeping abreast with the latest tax regulation updates in the country can compromise a business’s full compliance of the law. The fact is that the complex and ever-changing nature of these regulations can be difficult to navigate, but with the assistance of a knowledgeable tax professional, businesses and individuals can properly manage their tax obligations and minimize their tax liabilities.

Rest assured, our team remains committed to providing our clients with the guidance and support they need every step of the way.

Polishing on the potential of technology

Attending various conferences that delved into the evolution of modern accounting and the birth of the digital economy further gave me the privilege of witnessing first-hand the impact that the two's marriage can have on businesses in the country. In particular, I have seen the potential of cloud computing to revolutionize the accounting industry and transform the way companies operate.

When I started my firm, I saw an opportunity to leverage the benefits of cloud computing to create a more efficient and effective accounting solution. Despite initial rejections from networks, I was determined to pursue my dream of creating a streamlined process that could expand the firm's reach and build partnerships that would help boost our brand's credibility and expertise.

The Philippine government has also recognized the potential of cloud computing, and they have implemented various initiatives to promote its adoption. The pandemic has undoubtedly accelerated the need for companies to embrace digitalization and invest in improving their technological capabilities. This shift has created a growing demand for data centers, particularly with the rise of e-commerce, innovative city trends, and the adoption of cloud technology.

Moreso, I am encouraged by the recent predictions from industry experts such as Fitch Solutions Country Risk and Industry Research. Reporting how the experts expect a significant investment into digital infrastructure and data center development in Southeast Asia only favors the bold. As digitalization continues to keep pace even during the pandemic, the Asia Pacific data center market is expected to witness at least USD 94 billion worth of investments by 2027, growing at a compound growth rate of 6.30 percent from 2022 to 2027.

These projections highlight the immense opportunities for companies like mine to contribute to the growth of the digital economy. I am confident that my firm's commitment to leveraging cutting-edge technologies and providing innovative solutions will enable us to take advantage of these opportunities. The next step is always making valuable contributions to the country's digital transformation.

Empowering businesses towards a more robust digital economy

However, our contributions go beyond just financial gains. Our innovative approach to accounting and commitment to education and empowerment have inspired a new generation of entrepreneurs and businesses to adopt technology and embrace innovation. This, in turn, has had a positive impact on the Philippine digital economy as a whole, as more businesses adopt technology and embrace innovation, resulting in increased competitiveness and growth.

Summing up all of my observations, I can attest that my journey with Babylon2K and the firm's contributions to the Philippine digital economy are a testament to persistence and determination. From rejections to revolution, Babylon2K has become a leader in the Philippine digital economy, inspiring and empowering businesses to reach new heights.

As the digital economy continues to grow and evolve, Babylon2K will remain at the forefront, driving change and leading the way for a better digital future.

Connect with our team of tax and accounting experts to know more about how we can help you and your business comply with the rules of the digital economy. Reach us at www.babylon2k.org or https://www.facebook.com/babyloneth.