Senate pushes VAT on Netflix, HBO

MANILA, Philippines — The Senate has started discussions on a proposed measure to impose value-added tax (VAT) on foreign streaming platforms like Netflix and HBO Gold operating in the country.

In his sponsorship speech on Tuesday afternoon, Sen. Sherwin Gatchalian clarified that Senate Bill 2528 amending the 1997 National Internal Revenue Code is not a new tax measure, but is merely for collecting taxes from digital service providers.

He said the bill seeks to define clearly the terms “digital service,” “digital service provider” and “nonresident digital service provider.”

“With these definitions being clear, tax authorities can enforce the tax rules effectively and fairly to the digital service providers,” he said.

The senator said the Department of Finance estimated that the government tax collection may reach P83.3 billion from 2024 to 2028.

He noted that digital service providers have seamlessly woven themselves into the country’s fabric of existence – enticing interests, influencing social interactions and even shaping knowledge.

“For instance, from 2018 to 2022, the revenue generated from digital media increased by an average of 19 percent, reaching a staggering P78.2 billion – primarily stimulated by revenue from video games,” he said.

He pointed out that in accordance with the Tax Code, the sale of services performed in the Philippines is subject to VAT, and digital service providers, whether resident or nonresident, should be subject to VAT since they are sellers of services in the country.

“However, due to the ambiguity in the law, the taxability of nonresident digital service providers becomes unclear. As a result, nonresident digital service providers are not mandated to pay 12 percent VAT,” he added.

He said that “failure to impose and collect tax on nonresident digital service providers contradicts the fundamental principles of equitable taxation. It generates an imbalance between domestic and foreign service providers, placing local businesses at a disadvantage.”

“We have local platforms, like iWantTFC and Vivamax, providing digital services where users pay a subscription fee to stream and watch video content. Take note that these local streaming platforms are subject to VAT, as clearly stated in our Tax Code, highlighting the uneven playing field between local and nonresident digital service providers,” he said.

According to the 2022 analysis of UK-based price comparison service Uswitch, the Philippines is the third best country in the world and the best in Southeast Asia to have a Netflix subscription in terms of price and variety of content.

Citing also the 1st quarter 2022 report of Statista, Netflix is the most popular streaming service among Filipinos, with about 31 percent market share.