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House panel OKs proposed 12% VAT on some digital service providers

The House ways and means panel has approved a bill seeking to impose a 12% Value Added Tax (VAT) on some foreign and local companies providing goods and services via digital and electronic platforms.

Still unnumbered, the substitute bill seeks to amend Section 105-A of the National Internal Revenue with a provision making a non-resident digital service provider such as Netflix, Spotify, Lazada, among others, liable for assessing, collecting, and remitting the VAT on the transactions that go through its platform.

Also, the bill defines digital service provider 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."

Further, digital service providers may also be:

  • a third party that acts as a conduit for goods or services offered by a supplier to a buyer and receives commission therefor;
  • 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.

“Iyong malalaking kumpanya katulad ng Netflix, nagbebenta sa Pilipinas kaya dapat magbayad ng VAT. Pero wala nang income tax kasi we [in the bill] did not require them to have a domicile here,” House Ways and Means panel Chairman Joey Salceda, one of the authors of the measure, said.

“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, also one of the authors of the measure, added.

Finance Assistant Secretary Daki Napao said that measure could raise P10 billion in revenue for the government, of which P9 billion will come from foreign companies that are based in the Philippines.

Salceda also clarified that the measure does not seek to burden small businesses and the public but imposes taxes on where it is due, particularly big companies such as Netflix and Spotify.

“This is just a matter of common tax sense. If brick-and-mortar establishments, which are the hardest-hit by the COVID-19 pandemic, have to pay VAT, the giants of e-commerce shouldn’t be exempt. In general, if you sell, you pay VAT, unless you fall under the exemptions for small businesses,” Salceda said.

“If your sales are below P3 million, you are exempt from paying or filing VAT. If your net income as a sole proprietor is below 250,000, you are exempt from paying and filing income taxes. So, the small Facebook online seller will not be taxed, I guarantee you.” Salceda added.

Salceda then said that based on impact studies that his committee conducted, only 0.04% of all revenues from this proposal will come from the bottom 20% of the population.

“This will not be felt by the most vulnerable households, will be felt only very mildly by the richest households, but it will certainly generate new revenues for our COVID-19 response,” Salceda said. —LBG, GMA News