Congress approves 12% “Digital Tax”

Congress approves 12% “Digital Tax”

After it was considered a few months ago, the House Ways and Means panel approved the imposition of 12% VAT on digital service providers. The new “digital tax” will cover services like Netflix and Lazada.

The approval of a 12% tax on digital services is way higher over the 5% tax implemented in other countries. House ways and means committee chair Joey Salceda explained in an interview with Inquirer last May that the said move is meant to offset an estimated Php 120 million loss in revenues as the government intends to cut corporate taxes to 25% to ease the effect caused by the COVID-19 pandemic.

In addition, Salcedo adds that the streaming market alone is worth around Php 5 billion and that Facebook ads contributes also a big chunk to the digital economy. As for eCommerce platforms like Lazada, Salceda estimates that they can collect around Php 30 billion since the sector is slated to reach Php 260 billion for this year.

“Digital service providers from outside [the country] gain profit from our constituents but they don’t pay tax [to Philippine government]. This bill levels the playing field for local digital service providers,” Deputy Speaker Sharon Garin said.

In the yet-to-be-numbered bill defines digital service providers as:

an entity which provides digital service or goods to a buyer through an online platform for purposes of buying and selling of goods or services or by making transactions for the provision of digital services on behalf of any person.

The said bill also defines digital service providers as:

  • a third party that acts as a conduit for goods or services offered by a supplier to a buyer and receives commission;
  • a platform provider for promotion that uses the internet to deliver marketing messages to attract buyers;
  • a host of online auctions conducted through the internet, where the seller sells the product or  service to the person who bids the highest price;
  • a supplier of digital services to a buyer in exchange for a regular subscription fee over the usage of the said product or service; and
  • a supplier of electronic and online services that can be delivered through an information technology infrastructure, such as the internet.

While the bill mentions Netflix, Spotify, and Lazada, Congress has yet to define the extent to which digital services will be taxed.

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