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Foreign-based digital service providers such as Amazon, Netflix and Google will now have to pay a 12% VAT on revenues generated in the Philippines.
Video streaming giants such as Amazon, Netflix, Disney, HBO and Google will now have to pay a 12% value-added tax (VAT) for providing digital services in the Philippines.
Philippine President Ferdinand Marcos Jr. on Wednesday signed into law Republic Act (RA) 12023, also known as the Value-Added Tax on Digital Services Act, which aims to level the playing field for local digital services companies.
The law covers digital media, digital music, digital video, video on demand and digital advertising.
"The rapid change in our digital landscape has created a gap in our tax system … We are now bridging that gap. With this law, we are saying that if your presence in the Philippine market is as real as your profits, then your tax responsibilities should also be equally tangible," Marcos said during the signing ceremony at Malacañang Palace.
He added that the new law creates a level playing field for local digital services providers. "Local businesses and international digital platforms now compete on equal terms. We no longer will be playing by different sets of rules. If you are reaping the rewards of a fruitful digital economy here, it is only right that you contribute also to its growth."
"After all, whether you are a small tech startup or a global tech giant based halfway around the world, if you are making money here in the Philippines, you are part of our community. And with that comes a shared responsibility," Marcos said.
The Filipino president said the government has taken a deliberate and measured approach to ensure the new tax would not stifle innovation or hinder growth.
"We have been precise about where this tax applies, sparing educational and public interest services from its coverage: Online courses, webinars, and other digital educational offerings are not subject to VAT in order to keep education affordable and accessible to all Filipinos," Marcos said.
Minimal price increase
Bureau of Internal Revenue Commissioner Romeo Lumagui Jr. has reportedly assured the public that the digital services tax will not have a major impact on their subscriptions to foreign digital platforms.
"It's a business decision by the service providers. But again, they should have been paying VAT from the very beginning, so they should have incorporated the concept of VAT in their pricing," Lumagui said during a press briefing held after the signing ceremony.
He added that there could be a price increase. "But I think it would be minimal, it's not automatically 12%."
Meanwhile, Department of Finance Director Euvimil Nina Asuncion said that the imposition of VAT on foreign digital service providers will not affect the growth of the digital industry, nor will it discourage other foreign players from doing business in the country.
"They are already doing this in other countries. They've been complying. Actually, we're late in the game in collecting from non-resident DSPs," Asuncion told reporters Wednesday.
$1.87 billion in revenue to be generated in five years
The Philippines expects the VAT on foreign digital services providers to generate an estimated $1.87 billion in revenues for the government over the next five years.
According to President Marcos, this is enough to build 42,000 classrooms, more than 6,000 rural health units and 7,000 kilometers of farm-to-market roads.
In addition, 5% of revenues will be allocated to the country's creative industries.
"This means our artists, filmmakers, musicians – the very people who fill our platforms with stories and with content – will directly benefit. This ensures that our creative talents are not just surviving in a competitive digital market but will be allowed to prosper," Marcos said.
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