Jul 31, 2020

House Panel Approves Taxes on Digital Services Like Netflix and Spotify

The house panel in the Philippine government has just OK'd the bill proposing 12% VAT on digital services.

Streaming Netflix, Spotify, or shopping online may soon be more costly among Filipino consumers as the House Committee on Ways and Means has now approved a bill imposing a 12% value-added tax (VAT) on local digital transactions.

The recent measure is said to have been implemented to tax online licensing of software, mobile applications, plus the provision of digital content like music and information.

The panel, which is spearheaded by Albay Rep. Joey Salceda, has rubber-stamped a substitute bill, which will amend the National Internal Revenue Code of 1997. As it is, digital service providers that operate via online platforms will be taxed accordingly.

This indicates that foreign corporations such as Netflix, Spotify, Apple Music, Lazada, Shopee, and tons of firms will have to render payment for and impose VAT on their services.

Apart from these companies, online advertisements, e-learning, and online courses, alongside subscription and payment processing services, will also be included.

Meanwhile, Salceda added that third parties which act as channels for digital goods and services, and those who receive a commission for transactions are likewise among those who will be taxed.

On the other hand, Salceda was quick to point out that small enterprises will continue to be exempted from VAT. Also, he shared that 0.04% of all the proposed measure's revenues will be sourced out from the bottom 20% of the population.

He also clarified that the bill doesn't target to burden the small, online businesses in the country, such as the online sellers from platforms like Facebook. Instead, it will only impose a tax on more prominent companies. The regular taxing law is confirmed to be applied in the new bill.

On paper, a company is only exempted from filing VAT if its sales are below PHP 3 million. Sole proprietors that make PHP 250,000 and below are likewise not included in this bill.

Salceda concluded, "In other words, this will not be felt by the most vulnerable households, and will be felt only very mildly by the richest households."

For the uninitiated, the bill defines value-added tax as an indirect tax, which may be shouldered by the buyer, transferee, or the lessee of the goods, services, or properties.

Finance Assistant Secretary Dakila Napao revealed that with the approval, the Philippine government would earn as much as PHP 10 billion in the process.