No hefty hike seen in foreign digital service rates after VAT law

Cloud services or those platforms providing downloadable digital content are also affected by the new law such as Netflix, Disney+, HBO Go, Google, Spotify and other online marketplaces such as Amazon. (Pexels Photo)

By Darryl John Esguerra, Philippine News Agency

MANILA – The government is not expecting foreign digital service providers (DSPs) to implement a significant increase in the prices of their services and goods following the enactment of a measure imposing value-added tax (VAT) on non-resident DSPs.

In a Palace press briefing Wednesday, Bureau of Internal Revenue (BIR) Commissioner Romeo Lumagui Jr. said while a change in the prices of service and goods depends on the DSPs and is not always assured, any increase due to the VAT imposition would be minimal.

“It’s a business decision by the service providers. But again, nagbabayad naman na sila dapat (they should have been paying VAT) from the very beginning so they should have incorporated the concept of VAT sa simula palang (at the very beginning) during their pricing,” Lumagui said.

“Puwede magkaroon ng price increase but again, I think it would be minimal, hindi yan 12 percent automatically mag-iincrease sila (There could be a price increase but again, I think it would be minimal, that’s not automatically 12 percent).”

On Wednesday morning, President Ferdinand R. Marcos Jr. signed Republic Act (RA) 12023 into law, which imposes a 12-percent VAT on electronic or online sale of services, such as online advertisement services and provision for digital advertising space; digital services in exchange for a regular subscription fee; and supply of other electronic and online services that can be delivered through the internet.

Cloud services or those platforms providing downloadable digital content are also affected by the new law such as Netflix, Disney+, HBO Go, Google, Spotify and other online marketplaces such as Amazon.

Dumaguil said the new law would level the playing field for local providers who are already subjected to VAT unlike their foreign counterparts.

He also said the collected taxes will be directed toward the government’s infrastructure and social welfare services programs.

Around PHP105 billion in revenues is expected to be collected in five years due to the new law.

Won’t discourage investments to PH

Meanwhile, Department of Finance (DOF) Director lawyer Euvimil Nina Asuncion said the VAT imposition to non-resident DSPs will not affect the growth of the digital industry and will also not discourage other foreign players from doing business in the country.

“They are already doing this in other countries. They’ve been complying. Actually, we’re late in the game in collecting from non-resident DSPs,” she said.