Proposed VAT on Netflix, digital services gains Senate traction
The government may rake in up to P90 billion in revenues over the next five years should the Senate pass a bill charging foreign digital service providers, such as the popular movie streaming platform Netflix, a 12-percent value-added tax (VAT), Sen. Sherwin Gatchalian said on Tuesday.
Speaking at the Kapihan sa Senado media forum, Gatchalian said the Senate committee on ways and means, which he chairs, was coordinating with the Bureau of Internal Revenue (BIR) to iron out the details of the proposed tax measure, which the House of Representatives had already approved.
Senate Bill No. 250, authored by Sen. Pia Cayetano, would be taken up by a technical working group (TWG) after hurdling the deliberations in Gatchalian’s committee.
He said the would-be tax regime for international web-based services, including Lazada, Shopee and other online shopping apps, was “nothing new” since similar domestic businesses were mandated to pay VAT.
“All local corporations [offering] digital goods and services are already paying 12-percent VAT. The problem with our tax code is that it did not cover nonresidents or foreign-owned [digital services],” Gatchalian told reporters.
Article continues after this advertisement“So it created a gap,” he said. “We’re crafting this law to plug that gap. So this 12-percent [VAT] is actually nothing new.”
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According to the senator, the Philippines is among the four remaining countries in Southeast Asia that do not impose VAT on digital transactions.
He said about 120 countries all over the world were already collecting tax on online goods and services.
“We’re actually behind other countries,” he pointed out.
He added: “It’s not a unique setup. In fact, when I was talking to Netflix [executives], they were puzzled why we don’t [impose VAT] because they’re paying it in other countries.”
Gatchalian said imposing VAT on web-based transactions would provide the government additional annual tax revenues of over P17 billion, or about P90 billion in the first five years.
He said the TWG, composed of representatives of various sectors, would discuss the provisions regarding the collection of VAT, which will also cover digital payment companies, video games, mobile applications and even social media networks.
Impact on consumers
Gatchalian acknowledged that consumers may ultimately carry the burden of paying for more expensive digital services since VAT is considered a “pass-on tax.”
But market competition may eventually prompt foreign companies to just absorb the additional cost, he said.
“Due to competition, it will even the playing field,” he added.
“Theoretically, they may pass on [the VAT], but there’s no guarantee that they will do that or if the fees we’re paying will be more expensive at the end,” he added.
Gatchalian said he wanted the BIR to provide a more detailed process of imposing VAT on digital transactions.
In particular, Gatchalian said, the BIR should be able to explain how it intends to audit digital companies based abroad to make sure they are declaring their profits truthfully.
“If they violate the law, what should we do? These companies are based abroad so you cannot just close down their websites,” he noted.
The Senate would try to pass its version of the bill within the year since foreign digital service providers did not oppose the measure during the committee hearing, according to Gatchalian.
“They are cooperative because they want to follow our laws and they have reputational risks,” he said.
Foreign companies [like Netflix] “just wanted a legal basis. Now we are giving them the legal basis (to pay VAT),” Gatchalian added. INQ
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