Will you pay for more? Proposed 12% VAT on Netflix, other digital service providers worries consumers

Subscribers of digital service providers, like streaming service Netflix, expressed concern on the Senate’s proposal to impose 12 percent value-added tax (VAT) on these companies, even if there’s no guarantee yet if this will be passed on to consumers.

Senator Sherwin Gatchalian, chair of the Senate committee on ways and means, said on Tuesday that the government can earn up to P90 billion in revenues for five years if the proposed Senate Bill No. 250 is enacted into law.

He also said that the tax may or may not be shouldered by the consumers since there will be a “competition” among the digital service providers.

“Ako nakikita ko dyan dahil nga laban-laban na ngayon, even playing field. Of course doon sa acknowledgment receipt natin may 12% doon pero pwede rin nilang ibaba ang subscription fees nila,” Gatchalian said.

This proposal, however, did not sit right with 25-year-old Chareez Reyes, who has been a Netflix subscriber for two years.

“I heard about this long time ago and I’m a bit shock with this news since [the] Philippines is somehow experiencing now an inflation on almost of all things that can be sold [in] the market even on fast food chains, imported goods, and many more which is not really a good thing for consumers,” she told republicasia.

Reyes also stressed that the uncertainty of whether or not the tax will be passed on the consumers also left a “negative impression.”

She added that some consumers might be left with no choice but look for an alternative if the fees would go up.

Mar Alvin Troy Tagwa, 29, also agreed that this may lead to the decrease in the number of subscribers of these foreign companies. 

“Hindi lang naman po kami na may mga trabaho ‘yung nagsu-subscribe sa Netflix. May mga estudyante rin po kasi na Netflix subscriber, eh hindi naman po lahat maa-afford if ever po na magtaas or patawan po ng tax itong Netflix,” Tagwa told republicasia.

“Pero kung hindi naman po nila ito tataasan ng subscription fee buwan-buwan, wala naman pong problema,” he added.

The House of Representatives approved on final reading the counterpart measure of this proposal last year. Meanwhile, the upper house targets to pass their version this year.

Plug tax gaps

Gatchalian said that this is not a new tax proposal, adding that there have been 120 countries that are imposing VAT on digital service providers.

What the bill aims is to plug tax gaps with the foreign companies, he clarified.

“Ang problema under our tax code, hindi naisama o hindi nasaklaw ang mga non-residents, mga foreign so naging gap siya,” the senator said.

“So hindi siya bago 12% pa rin pero dapat magbayad na itong mga non-resident, foreign digital service providers, mga foreign companies yan,” he continued.

The committee is now finalizing the proposed VAT on these digital services. 

Gatchalian said they have been coordinating with the Bureau of Internal Revenue (BIR) to discuss how the bureau will audit to ensure that the foreign companies would accurately declare their income.