Bill to tax digital transactions gets House panel’s nod

In this photo illustration a computer and a mobile phone screens display the Netflix logo on March 31, 2020 in Arlington, Virginia. (Photo by Olivier DOULIERY / AFP)

MANILA, Philippines — Despite some opposition to new taxes, the House of Representatives’ ways and means committee approved a bill to tax digital transactions.

House Bill No. 372, filed by the committee’s chairperson and Albay 2nd District Rep. Joey Salceda, was approved during the said panel’s hearing on Wednesday. If enacted, it would amend the National Internal Revenue Code of 1997 to allow imposing value-added tax (VAT) on digital or electronic transactions and services.

Salceda’s proposal defines a digital service provider as a company or individual providing digital service to a buyer through online platforms to buy and sell goods and services.

If it becomes law, the bill would also mandate collecting VAT from companies providing services in the Philippines but are not based in the country, including social media sites like Facebook and Instagram and streaming services like Spotify, Netflix, and other online sites.

However, questions were raised during the hearing, particularly by committee member and Gabriela party-list Rep. Arlene Brosas, who was worried about foreign companies passing on additional taxes to consumers and double taxation on local firms.

“Mainam siguro na matukoy natin, saan ‘yong mga expected revenue streams ng digital tax na ito, sinabi rin kanina na ‘yong mga local, digital service providers are already implementing 12 percent VAT […] pero sa gagawin ba nating panukalang batas, papatawan ba ng additional VAT ‘yong mga digital transactions under this DSPs?” she asked.

(It may be good to know where the expected revenue streams of this digital tax would come from, as local digital service providers are already implementing the 12 percent VAT […], but with the proposal, would additional VAT be imposed on the digital transactions under these DSPs?)

In reply, Salceda explained that they want to mandate foreign companies to pay their taxes to the Philippine government for income earned in the country — as currently, taxes for such income are remitted back to their respective home countries.

“Itong mga (these) non-resident foreign corporations, they pay VAT in their home country, even if the income is earned in the Philippines. So what we are trying to say here is that the income that is earned in the Philippines should be VAT-ed, so hindi naman ‘yan as if na itong mga (it’s not as if that) Facebook, Google, they are not paying any VAT or any income tax. They do, but they pay it to their home country,” he said.

“For us to have a share, first we must make them covered, ‘yon ang ginagawa ng (panukalang) batas na ito, so ‘yong mga hindi nako-cover (and that is what this proposed bill wants, to cover those who are not covered),” he added.

Salceda said customers would not have to shoulder the ‘new taxes’ as companies are already paying taxes to their home countries, noting that the proposed bill wants to have a share of that tax proportional to what they earn in the Philippines.

“Kasi akala natin ‘ah, Facebook, baka naman i-pass on nila’.  Unang-una, napapass-on na nila ‘yan kasi nagbabayad sila ng buwis sa US, or kung hindi sa Netherlands.  Ang hinihingi lang natin, na ‘yong income which was earned in the Philippines should be taxed, should be properly shared with the Philippines,” he noted.

(Because we think that Facebook would pass it on.  But first and foremost, they are already passing it on because they pay taxes in the US, or the Netherlands. So what we are asking is that the income which was earned in the Philippines should be taxed should be properly shared with the Philippines.)

Leveling the playing field

Seeking more clarification, Brosas asked if customers would need to pay higher dues to avail of streaming service Netflix with the new round of taxes. Salceda clarified that Netflix is already paying the 12 percent VAT, which means that the proposed bill would not apply to them anymore.

Andrei Buendia of Vriens & Partners, Netflix’s local representative, said he’s not sure if they pay VAT to the government. But, if they do, the higher costs will be passed on to the consumer, proving Brosas’ concerns.

“Unfortunately, I’m not sure if the current subscriptions are subject to VAT but what we know is that if VAT is imposed and if we’re currently not paying VAT, that would be passed on to the consumer,” Buendia said.

“So ‘yon, that’s what I’m saying chair, halimbawa, estimate natin US$15.49 ang bayad sa standard subscription, tataas ito ng around magkano?  Mag-aaddition ba tayo dito ng P110?  Malaki ‘yon Mr. Chair,” Brosas noted.

“So ‘yon, that’s what I’m saying, chair, for example, let us estimate that around US$15.49 would be needed to pay for a standard subscription; would it increase by how much? Would we add P110? That’s big, Mr. Chair.)

Former AAMBIS-OWA Rep. Sharon Garin, who authored the previous version of the bill and was invited during the committee hearing, explained that local streaming sites would be at a disadvantage if Netflix and other foreign companies were not taxed, as local players are already mandated to pay the VAT.

This was seconded by Salceda, who said local companies like Sky, IWant TV, and VivaMax are actually paying VAT as they are companies registered in the Philippines.

“We have to remember the bigger picture though, Mr. Chair, because if we have a Netflix or any kind of Netflix in the Philippines, they are paying taxes, 12 percent. So unfair naman ‘yon, we are actually favoring the non-Filipinos by not imposing this digital taxation,” Garin said.

“Katulad ng Sky, nagbabayad ng 12 (percent).  Si Netflix pala zero […] Kasi nagbabayad rin si IWant TV, nagbabayad din ng 12 percent si VivaMax.  So lahat ng mga domestic content, ‘yong may mga domestic content are disadvantaged,” Salceda added.

(Like Sky, they pay the 12 percent VAT.  Netflix does not, but IWant TV does, VivaMax also pay the 12 percent. So all domestic content is VAT-able, so the domestic content is disadvantaged.)

In the end, Brosas did not oppose the approval of the proposed measure, but she introduced another provision that would exclude software and other digital products used for education.

With the approval from the House ways and means committee, the bill will be redrafted to include Brosas’ amendment and then forwarded to the plenary for deliberations on the first reading.

The proposal to tax digital services, however, is not new. In 2020, during the 18th Congress and the height of the COVID-19 pandemic-induced lockdowns, Salceda drew flak for proposing that digital services like Netflix be taxed. Netizens claimed that these forms of entertainment were crucial during the lockdowns.

READ: Salceda wants additional tax on digital services like Netflix, Lazada, FB ads 

READ: PH urged to tax digital platforms, online transactions

Then Bayan Muna lawmaker Carlos Zarate warned that such proposals would only hit the poor and the middle class as they found new sources of entertainment after the shutdown of media giant ABS-CBN.

READ: Plans to tax online products will only hit poor, middle class — Bayan Muna 

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