House approves VAT on Netflix and other digital providers

On third and final reading, Congressmen voted 167-6 with one abstention to approve House Bill No. 7425, which seeks to impose a 12% value-added tax on digital service provider transactions, including popular streaming platforms Netflix and Spotify.

On third and final reading, Congressmen voted 167-6 with one abstention to approve House Bill No. 7425, which seeks to impose a 12% value-added tax on digital service provider transactions, including popular streaming platforms Netflix and Spotify.

The House of Representatives has approved legislation to levy a value-added tax (VAT) on popular digital streaming platform Netflix and other major digital service providers (DSPs).

On the third and final reading of House Bill No. 7425, which seeks to impose a 12 percent VAT on DSP transactions, including popular streaming platforms Netflix and Spotify, congressmen voted 167-6 with one abstention on Tuesday night’s session.

The bill seeks to amend the National Internal Revenue Code in order to level the playing field between traditional and digital businesses.

According to the bill, a DSP is “an entity that provides digital services or goods to a buyer through an online platform for the purposes of buying and selling goods or services or by making transactions for the provision of digital services on behalf of any person.”

The proposed VAT on Netflix and Spotify will also cover the electronic or digital sale of services such as online advertisements and the provision of digital advertising space, and the supply of other electronic and online services that can be delivered via the internet.

It includes online software licensing, updates and add-ons, west filters and firewalls, mobile applications, video games, online games, webcasts and webinars, and digital content such as music, files, images, and text and information.

It also intends to tax search engine services, social networks, internet-based telecommunications, online training such as distance learning, e-learning, online courses and webinars, online newspapers and journal subscriptions, and ad payment processing services.

Albay Rep. Joey Salceda, chairman of the House Ways and Means Committee and the bill’s primary author, stated that the measure should not be considered a “new tax” because it only “closes loopholes for large foreign corporations.”

“We imposed no new taxes. We’re simply clarifying that they should be VATed. In general, if you sell, you pay VAT unless you fall under the exemptions for small businesses,” he explained during the virtual hearing.

“We have now clarified that digital services and the goods and services traded through digital service providers should generally be subject to VAT. This is just a matter of common tax sense,” the lawmaker pointed out.

He emphasized that the measure does not apply to small online businesses.

Salceda previously stated that the measure could generate approximately P29.1 billion in new annual revenue to assist the country in dealing with the pandemic.

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