Netizens using their social media apps on their phones. ABS-CBN News/File 

MANILA — After Netflix, other digital services may soon raise prices as the 12 percent VAT on non-resident digital firms takes effect this month. 

Netflix, one of the largest and most popular video streaming platforms operating in the Philippines, announced last month that it was hiking subscription fees to make up for the VAT on its services.

Netflix to increase prices in June as PH digital tax law takes effect

Its cheapest plan, which was P149 per month prior to the tax, was raised to P169. Its premium plan meanwhile, was hiked to P619 per month from P549 before.  

While the imposition of 12 percent value added tax (VAT) on digital services promises more revenue to the Philippine government and a more level playing field for local providers, some experts and netizens expressed concern that consumers will bear the cost of increased subscription fees.

A new digital tax took effect just this Monday, June 2, imposing a 12-percent VAT on foreign digital service providers (DSPs). This covers streaming platforms (both video and audio), marketplaces, cloud and storage services, gaming, online learning and advertising, subscription-based content platforms, ride-hailing apps, and social media influencer services.

While Netflix raised subscription fees, popular gaming marketplace Steam absorbed 12 percent VAT on games in its catalog, keeping prices steady for its consumers. 

When dealing with the digital VAT, will other companies follow Netflix or Steam?

Harvard-trained tax expert and Asian Consulting Group chief tax advisor Mon Abrea told ABS-CBN News in an interview that "VAT is an indirect tax passed on to consumers."

"It will promote fair competition between foreign and local providers, online and those with physical stores, but would also result to increase in prices since companies will simply add 12 percent VAT on their current subscription fees," he said.

He mentioned the government eyes over P100 billion in additional revenue from VAT on digital services, which can help fund digital infrastructure and support local industries. But he emphasized the added revenue won't come from tech giants, but from consumers themselves.

"This revenue is not from the non-resident tech giants but from the fees collected from local consumers and subscribers as the VAT was simply passed on to its customers," Abrea said. 

This is why Abrea urges Congress to adopt and implement the OECD [Organization for Economic Development and Cooperation] Global Minimum Tax to collect income tax from multinational companies, including tech giants like Amazon, Google and Facebook.

OECD Global Minimum Tax is a framework designed to boost revenue collection by ensuring that multinational companies pay an equal share of taxes and lessen "tax loopholes" with low or zero tax rates. It establishes a 15 percent effective minimum tax rate for MNCs wherever they operate.

CHALLENGES IN IMPLEMENTATION

Abrea also explained that there can be some challenges in implementing the law, such as compliance from non-resident foreign DSPs, conflict of fairness with local and domestic companies, and the problems in Bureau of Internal Revenue's system itself.

"First, compliance from nonresident foreign digital service providers since they don’t have any physical presence or office in the Philippines. Requiring them to register is one, but making sure to declare and comply is another challenge," he said.

"Second, passing the burden of compliance to local or domestic companies by requiring them to withhold and remit the VAT is not fair considering that failure to comply will also subject them to penalties," he added.

Abrea said BIR has to adapt as well with digitalization by fully automating its system to be freed from reliance on voluntary compliance and the withholding system.

As some consumers decry the increased subscription fees, he emphasized, "VAT is a consumption tax. The more you consume, the more taxes you pay as it’s indirect and simply passed on to consumers or added to the selling price or subscription fees."

Steam to start charging 12% VAT in PH beginning June 1

Abe Olandres, chief editor of tech website YugaTech, echoed the same insights.

"The imposition of additional 12 percent VAT on digital services means additional burden on millions of people, especially the thriving Filipino online workers, freelancers and small business owners who rely mostly on digital goods and services," he said.

MAKE PIRACY GREAT AGAIN?

Olandres said that beyond entertainment-based services, even their work in YugaTech had to deal with increased subscription fees in Google for Work, Adobe Creative Cloud, Dropbox Pro, Google Drive, OneDrive, Canva Pro, FB and Google Ads, and many other digital services they depend on.

"I would even hazard a guess of the possibility that others would even consider reverting to digital piracy because of the new digital tax," he said.

Advertisers and businesses are also not safe from the impact of VAT on digital services, according to a marketing professional.

"It will increase advertising costs, advertisers will see a direct increase in ad spend by 12 percent unless they can claim the VAT back. Second, it can affect their budget allocation as businesses may reduce their allocated funds for advertising and may channel the budget to other necessities to absorb the tax," digital media buyer May Pearl Cariaga explained.

Some netizens have actively criticized the law, saying the increased subscription payments add to the high costs of other basic necessities.

Senator Sherwin Gatchalian, head of the Senate’s tax-writing panel, and Finance Secretary Ralph Recto have clarified earlier that the law is not a new tax system but merely a "[correction to the current system that creates an unfair advantage to foreign digital service providers and weakens the country’s tax base".

“Hindi tayo nagpapataw ng bagong buwis. Kokolektahin lang natin ang buwis na dapat naman talaga nating nakokolekta mula sa mga dayuhang digital service providers,” Recto said.

(We are not imposing a new tax system. We will only collect the taxes that we should supposedly have from foreign digital service providers.)

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