New law signed by President Ferdinand Marcos Jr. taxing foreign digital services, in five bullet points:
- Implementation of 12% VAT on Foreign Digital Services:
- Republic Act 112023 imposes a 12% value-added tax (VAT) on digital services provided by both resident and non-resident digital service providers, regardless of their physical presence in the Philippines.
- This law targets popular streaming platforms and e-commerce firms such as Netflix, HBO, Disney, Shein, Temu, and Amazon.
- Legislative Process and Priority:
- The reconciled version of the measure was passed by the bicameral conference committee of the Senate and the House of Representatives in June and was tagged as a priority legislation by the Marcos administration.
- The law adds a provision to the Tax Code, considering digital services rendered in the Philippines if consumed there.
- Aim to Level the Playing Field:
- Proponents, including Rep. Joey Salceda, emphasized that the measure aims to level the playing field between local and foreign digital service providers, addressing the unfair advantage enjoyed by untaxed foreign companies.
- The measure seeks to compensate the resident creatives sector, which has been subject to VAT and income taxes, unlike foreign service providers.
- Revenue Generation and Allocation:
- The Department of Finance expects the VAT imposition to generate around P83.8 billion from 2024 to 2028, with 5% of this amount allocated for developing local creative industries.
- The Bureau of Internal Revenue (BIR) will issue regulations to enforce the law, focusing on digital platforms and monitoring their transactions to ensure compliance.
- Impact on Subscription Fees and Market Dynamics:
- Any increase in subscription fees will be a business decision by the service providers, who should have already considered the VAT in their pricing structures.
- The government will not set a price cap on possible fee increases, relying on market dynamics to regulate prices and prevent excessive increases that could lead to a loss of customers.
- Critics like former Bayan Muna partylist representative Carlos Zarate argue that the VAT imposition is anti-consumer and will hurt middle-class consumers more than the targeted large international companies.
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