Philippines imposes 12 per cent value-added tax on Netflix, HBO and Disney services
VAT on foreign digital services is expected to generate $1.4b revenue in the next 4 years
Philippine President Ferdinand Marcos Jr. on Wednesday signed a law imposing a 12% value-added tax on non-resident digital service providers including Netflix, HBO and Disney.
The new tax, among the first revenue-generating priority measures passed under Marcos, applies to a vast range of products and services including search engines, software licensing, mobile apps, online games, webinars, music, advertising, warehousing and cloud services, website hosting, and electronic marketplaces.
"Whether you are a small tech start-up 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," Marcos said in a speech at a signing ceremony attended by legislators.
"Local businesses and international digital platforms now compete on equal terms. We no longer will be playing by different sets of rules." Failure to pay the tax would lead to the suspension of business operations in the Philippines of a digital service provider.
The Philippines, which has among the world's heaviest mobile phone usage, is tapping tech giants to raise revenue for infrastructure and other government projects amid tight fiscal space. The VAT on foreign digital services is expected to generate 79.5 billion pesos ($1.4 billion) in revenue in the next four years, according to the Finance Department.
Senate president Francis Escudero said the law plugs a tax revenue loophole caused by the "vagueness" of existing laws pertaining to taxation of e-commerce transactions, particularly foreign-based companies that provide services to local consumers.
Other countries have been imposing the same tax on digital services and transactions now that their consumption has become almost universal, Escudero said in a statement. The law exempts educational services such as online courses and webinars provided by privately-owned schools.
Marcos said the government expects to raise 105 billion pesos ($1.87 billion) in tax revenues over the next five years, to be used to build thousands of school classrooms, rural health clinics, and rural roads. Five percent of the revenues will be allocated to creative industries including artists, filmmakers and musicians.