Philippines levy 12 percent tax on digital services • The Register


The Philippines was the last country to levy a tax on digital services.

Such taxes require Netflix and Spotify to pay local sales taxes even though their services – legal, fictional, and physical – are performed outside of local jurisdiction.

The Philippines chose a rate of 12 percent, which reflects local sales tax.

“We have now made it clear that digital services and the goods and services traded via digital service providers should in principle be subject to VAT. It’s just a matter of common tax sense, “said Joey Salceda, a member of the Philippine House of Representatives and a supporter of the nation’s tax law amendment.

Salceda tied the change to the post-pandemic economic recovery.

“If the stationary businesses hardest hit by the pandemic have to pay VAT, the giants of e-commerce should not be excluded,” he said.

However, local companies that are already exempt from VAT due to low sales are not covered by the expansion of the tax into the virtual area.

Salceda’s changes are designed to capture content streamers as well as online software sales – including mobile apps – as well as SaaS and hosted software. In the report by the Philippine news agency on the entry into force of the amendment, firewalls are even mentioned as subject to VAT.

The Philippines aren’t the only ones implementing a digital services tax to generate more revenue after the COVID-19 pandemic hit government revenues – Indonesia followed the same logic in 2020.

But taxes are controversial because they are seen as a one-sided response to the general problem of choosing multinationals in the jurisdiction in which they will pay taxes – a practice that undermines national tax bases. The G7 group of countries and the OECD believe that collaborations that shift tax liabilities to countries where goods and services are purchased and consumed are the most appropriate answers, and that harmonizing global tax laws so that big tech can be found everywhere pays where they operate a better plan than taxes on digital services.

The US has supported this view of taxes on digital services by announcing that it will impose tariffs on the countries that adopt them – but that plan has yet to be implemented.

In the meantime, it is taking years to agree and implement the process of creating a global approach to multinational tax fraud.

But the Philippines want more cash in their coffers – and to show that local businesses are not being penalized – as soon as possible. ®

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