Did you hear that Netflix will charge for tax now?
Not only netflix, but several other digital services that we use daily, whether it be for business or personal use. With Metro Manila still under quarantine due to COVID-19, most business operations are now online with all the people recommended to remain at home for safety reasons.
The current situation led to the increase in the use of digital services and the government looked at it as an opportunity to bounce back. This new source of revenue for government spending allows them to capture the value created by digital transactions. It would also help ease the burden on individual taxpayers and open different approaches to encourage tax compliance.
A Philippine house bill was passed that is directed at taxing foreign-supplied digital services because of the revenue loss due to the pandemic. The bill proposes the standard 12% VAT rate in the Philippines is applied to qualified digital services. According to the bill, these are considered as taxable digital service providers:
- A platform provider for promotion that markets to potential customers using the internet (eg. Google Ads, Mailchimp)
- A host of online auctions conducted online, where the product or service is sold to the person with the highest bid (eg. Ebay, Carousell)
- A supplier of digital services to a buyer in exchange for a regular subscription fee over the usage of the product or service (eg. Netflix, Spotify)
- A supplier of electronic and online services that can be delivered through information technology structure such as the internet (eBooks, Online Tutoring)
- A third party that acts as a channel for goods or services offered by a supplier to a buyer and receives commission (eg. Airbnb, Gcash)
As the Philippine economy continues to transition towards digitalization, startups should be aware to help make necessary changes to their businesses. Monitoring your cash flow and lessening expenses as much as possible is a top priority. And with the new digital bill, it could only lead to added costs to things such as marketing tools. Here’s what our community has to say about the new digital bill:
Camille Alcera, The Investor’s Podcast
“As a consumer, I feel like people shouldn’t be limited in terms of the kind of media they consume. I’m sure Video on Demand services filter their content in a way and they also put ample disclaimers. I’m sure government institutions would also require fees from these media institutions. I won’t be surprised if these businesses would end up hiking prices. Since our business is technically free media, we are not really directly affected unless the bill would also require to regulate platforms with free content.”
Miggy Azurin, Huskee Digital
“The timing of this bill is questionable but it’s definitely something that should have been in place a while back. Major digital companies operating here in the Philippines should be subject to taxes just like any other business. Hopefully the additional tax revenue goes into meaningful projects that can help elevate the tech environment here in the Philippines. Although, taxing services like this always comes at a cost. At the end of the day, it’s always the end consumer that will inevitably foot the bill of additional taxes.”
Mari Ugoy, Acceler8 by UnionSPACE
“How will this bill affect startups and small businesses? This bill doesn’t just focus on adding VAT to Netflix and Spotify but it also covers all other digital services which most businesses nowadays rely on. It wouldn’t be a surprise if these “digital suppliers” would add VAT on top of their regular rates because.. I mean, why would they shoulder the VAT right?
It’s already bad enough that businesses have to cope with the current economic climate and the uncertainty of the quarantine, now they also have to think about the possible increases in their operational and marketing costs. It’s easy to say, ‘well, they should just increase their rates to compensate for the increase in their expenses’. But during this time, the need to have competitive rates is probably more important than ever. And also from a PR standpoint, jacking up your prices during a pandemic, is completely distasteful.
This bill just shows a misplaced sense of priority during a time when businesses are barely surviving. Why not table this bill first for future discussion once we’ve recovered?”