VAT impact on Netflix, other services felt by 2025

Louise Maureen Simeon – The Philippine Star
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October 4, 2024 | 12:00am

MANILA, Philippines — Consumers will likely feel the impact of the value-added tax (VAT) on foreign digital service providers in the first quarter of 2025, according to the Bureau of Internal Revenue (BIR) which stressed there is no guarantee from government that subscription costs will not increase.

The new VAT covers video streaming such as Netflix, Viu, Prime Video and HBO, as well as music streaming like Spotify and Apple Music, service vendors iTunes Store and Google Play, and video games like Activision and Nintendo.

“In other countries, they are paying their taxes. We are already late in the game. But of course, it is not guaranteed that there will be no price increase,” BIR Commissioner Romeo Lumagui said at a briefing.

President Marcos has enacted into law the imposition of a 12-percent VAT on all digital services consumed in the Philippines. At present, only local digital service providers are subject to 12 percent VAT.

“We coordinated with the companies and they know their responsibility and they will comply. But we cannot say if they will increase their prices,” Lumagui said.

But any increase, Lumagui pointed out, will not be equivalent outright to 12 percent as any hike will depend on specific digital service providers.

He stressed any price hike will not be immediate as there will be a 90-day period for the crafting of the implementing rules and regulations (IRR).

“There will also be an extension of up to 120 days after the IRR since we need systems development at the BIR for them to register and pay,” he pointed out. “So it will likely be early next year.”

BIR Assistant Commissioner Jethro Sabariaga said they have yet to make a computation of the full impact of the new law, pending the release of the required IRR.

Sabariaga clarified that digital service providers can absorb a 12-percent VAT.

For example, a basic plan on video streaming platform Netflix costs P249 per month. If it is subject to a 12-percent VAT, the plan could increase by almost P30.

“That’s how VAT works. But we don’t know if there will be other computations, etc. We don’t have the IRR yet,” Sabariaga said in a Viber message.

“They can absorb but it will depend on their decision if they will absorb or not,” he said.

There is no comment yet on the development from leading digital service providers like Netflix, Google and Amazon.

The new law, according to its authors, aims to level the playing field between local brick and mortar companies and digital service providers, whether the latter have offices in the Philippines.

Lumagui maintained that the charging of 12 percent VAT will promote fair competition among businesses and result in better products and services for consumers.

In a statement, research and advocacy group IBON Foundation said the VAT on digital services is the latest regressive tax on the poor and middle class who are already suffering from stagnant income, falling savings and rising prices.

“The government can raise hundreds of billions in revenues without burdening them. All it has to do is to make the tax system more progressive by cutting consumption taxes and increasing taxes on income and billionaire wealth,” IBON said.

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