Price Increase on Netflix and Spotify? New Taxes on Digital Service Providers Coming
President Ferdinand Marcos Jr. has his work cut out for him. In his first State of the Nation Address, he laid out a few economic plans to try to raise revenues and tackle the country’s ballooning debt and budget deficit.
One of his proposals is to impose value added tax (VAT) on digital service providers. That means any company that distributes some form of media online, including streaming services like Netflix, Amazon Prime Video, HBO Go, Spotify, Apple Music, and many others.
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By Marcos’s estimate, the new tax will yield an additional P11.7 billion in income for the government
“Our tax system will be adjusted, in order to catch up with the rapid development of the digital economy, including the imposition of VAT on digital service providers,” he said.
The idea to impose a 12 percent VAT on digital service providers was actually proposed by former Finance Secretary Carlos Dominguez, who served under the previous administration of Rodrigo Duterte. As part of a fiscal consolidation plan, Dominguez’s idea was to tax online advertisement services, digital services, and the supply of other electronic and online services.
Marcos’ Finance Secretary, Benjamin Diokno adopted the proposal and said most digital transactions in the country are not being taxed properly.
“Right now, if these [streaming services] can evade taxes, why not tax it?… And who can afford Netflix? It’s not the poor. So, they (consumers) can afford it,” he said in an interview with GMA News that a BusinessWorld article quoted. “Many transactions are digital. Those can slip by, not paying the proper amount of taxes, compared to, for example, buying from a store. That’s unfair. And who can use those kinds of (digital) transactions more? Those with cellphones, the rich.”
Last September, the House of Representatives passed on third and final reading House Bill 7425, which seeks to amend Section 105 of the National Internal Revenue Code by taxing digital service providers operating through online platforms.
The bill defines digital services as online licensing or software, updates and add-ons, website filters and firewalls, mobile applications, video games and online games, webcasts and webinars, as well as the provision of digital content, such as music, files, images, text, and information; online advertising spaces; electronic marketplaces; search engine services; social networks; database and hosting; and online training.
The bill exempts books and other printed materials that are sold electronically or online from VAT.
Meanwhile the Senate has yet to greenlight its version of the bill
If the measure is signed into law, subscription services to video and audio streaming platforms such as Netflix and Spotify will almost certainly go up, although these multinational service providers have yet to confirm whether they will pass on the added cost to consumers.
A basic subscription to Netflix, the world’s leading video streaming platform, costs P149. It’s the same price for a subscription to Spotify.