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House oks 12 percent VAT on digital services

by Jericho Zafra

THE House of Representatives approved on third and final reading a bill that may soon impose a 12 percent value added tax on digital service providers like Netflix and Spotify.

House Bill 4122 imposes 12 percent VAT on all digital transactions that pass through non-resident digital service providers (DSPs), and a 5 percent VAT on those providing services to the government.

A total of 253 lawmakers voted in favor of the measure, while four opposed it, and one abstained.

Movie streaming platform Netflix and Music streaming services such as Spotify and Apple Music are among the digital services that may soon be subjected to the proposed 12 percent VAT.

Online advertising services, subscription-based digital services, and other electronic services that can be offered via the internet are all included.

On the other hand, VAT exemptions will be granted for educational services such as online courses and webinars that must first be purchased before they can begin providing services through subscription plans recognized by the Department of Education, Commission on Higher Education, and state colleges and universities.

Additionally, if nonresident DSPs’ gross sales or revenues for the previous year surpassed P3 million, the measure mandates that they register for VAT. 

Before the imposition of VAT on DSPs, there should be a transition period of at least 180 days from the date that the Act goes into effect. This will provide the Bureau of Internal Revenue with time to draft the implementation procedures.

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