S.M.
I am very direct and my family calls me tough love. I would definitely bring it up. However, since you haven't brought it up immediately when you have seen it, your friend may question why you haven't brought it up before. I would talk to her in person vs. the phone and tell her there is something you need to get out in the open. Tell her you understand that she loves her baby, wants to protect her child and is correcting behavior that she doesn't approve of. Then just share your philosophy and why you don't believe in physical discipline. Offer her specific examples of when you observed her tapping her daughter's hand/butt, then offer her advice on how she might have handled it differently. I have this converstion often with my sister who had three children, only in her case it's verbal comments not physical. She almost always becomes defensive and tells me I'm not raising three children, I redirect our conversation to how the children and her parenting will be better because of no physical discipline and make her children feel respected and not talked down to. I think you can definitely get your point across without losing your friendship. I'm glad that you are a parent who doesn't believe in physical discipline. Also keep in mind that your friend may be tapping because she may have been raised that way and most often when we become parents we naturally fall into parenting as we were parented. She may not fully believe in spanking herself, but not know any other way.
Good luck to you be as tactful as you can, because it is your friend's daughter that will come up benefitting from this conversation.