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House OKs VAT On Netflix, Other Digital Providers

House OKs VAT On Netflix, Other Digital Providers
Image by Napoleon Schwan from Pixabay

The House of Representatives has passed a measure seeking to impose value-added tax (VAT) on popular digital streaming platform Netflix and other big digital service providers (DSPs).

At Tuesday night’s session, Sept. 21, congressmen voted 167-6 with one abstention to approve on third and final reading House Bill No. 7425, which seeks to impose a 12% VAT on transactions of DSPs, including popular streaming platforms Netflix and Spotify.

The measure intends to amend the National Internal Revenue Code and level the playing field between traditional and digital businesses.

The bill defines DSP 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 proposed VAT on Netflix and Spotify shall also cover electronic or digital sale of services such as online advertisements and provision for digital advertising space as well as supply of other electronic and online services that can be delivered through the internet.

It extends over online licensing of software, updates and add-ons, west filters and firewalls; mobile applications, video games and online games; webcast and webinars; and provision of digital content such as music, files, images, text and information.

It also seeks to tax search engine services; social networks; internet-based telecommunication; online training such as the provision of distance learning, e-learning, online courses and webinars; online newspapers and journal subscription and ad payment processing services.

Albay Rep. Joey Salceda, House ways and means committee chairman and principal author of the bill, said the measure should not count as a “new tax” as it only “closes loopholes for large foreign corporations.”

“We imposed no new taxes. We’re simply clarifying that they should be VATed. In general, if you sell, you pay VAT, unless you fall under the exemptions for small businesses,” he explained during the virtual hearing.

“We have now clarified that digital services and the goods and services traded through digital service providers should generally be subject to VAT. This is just a matter of common tax sense,” the lawmaker pointed out.

He stressed that small online businesses are not covered by the measure.

Salceda earlier said the measure could raise about P29.1 billion in new annual revenues to help the country cope with the pandemic.