Shopping online? House Panel okays 12% VAT on digital service providers

Shopping online and watching your favorite shows on Netflix will be pricier soon as the House Committee on Ways and Means approves the bill seeking to charge 12% Value Added Tax (VAT) on several local and foreign companies that provide goods thru digital platforms such as Lazada, Shopee, Zalora, and Spotify among others.

Aside from these services, online games, mobile applications, social media, online courses, website hosting, online advertisements, publication subscriptions, and cloud storage will also be affected. The substitute measure aims to acquire PHP 10 billion revenues on the country’s fight against the novel coronavirus.

It will also amend the seven sections of the National Internal Revenue Code of 1997. The House Panel led by Albay 2^nd District Representative Joey Salceda has stated that the foreign digital service providers gain profit in the Philippines since they don’t need to pay income taxes however, it will not be the case under this bill.

He also clarified that Micro, Small, and Medium Enterprises (MSME) and small businesses will still be exempted from VAT and it will not be felt by vulnerable households. Global internet companies that manage trading in our territories like Facebook and Google will be the main target.

Online System providers are described as follows:

• Electronic platforms that conduct promotion using the internet to attract buyers
• those who have online auctions that sell products to the customer who bid the highest price
• A digital supplier to a buyer in exchange for a regular subscription fee
• An online service that delivers via the internet
• a third party who acts as a conduit from a supplier to the buyer and gets a commission

Under the bill, a VAT registered non- resident online platform must issue an electronic receipt subject on the rules and regulations authorized by the Secretary of Finance with a recommendation from the Commissioner of Bureau of Internal Revenue (BIR).

They will be liable to register for VAT if their gross sales for the last 12 months reach Php 3 million and there will be reasonable grounds then the BIR will organize a simplified automated registration system for them.

The Philippines is now part of the countries that are trying to tax online providers. In the US, 6% of taxes were charged on media services while Indonesia demands 10%. The proposed act is still months away on becoming law so for now, you can still enjoy purchasing products over the internet while it is still being discussed.