The Philippines has become the latest nation to impose a digital services tax.
Such taxes require the likes of Netflix and Spotify to pay local sales taxes even though their services are delivered – legally, notionally, and physically – from beyond local jurisdiction.
The Philippines has chosen a rate of 12 per cent, mirroring local value added taxes.
“We have now clarified that digital services and the goods and services traded through digital service providers should generally be subject to VAT. This is just a matter of common tax sense,” said Joey Salceda, a member of the Philippines’ House of Representatives and a backer of the change to the nation’s tax code.
Salceda tied the change to post-pandemic economic recovery.
“If brick and mortar establishments, which are the hardest-hit by the pandemic, have to pay VAT, the giants of e-commerce shouldn’t be exempt,” he said.
However, local companies that are already exempt from VAT by virtue of low turnover won’t be caught by the extension of the tax into the virtual realm.
Salceda’s amendments are designed to catch content streamers, but also online software sales – including mobile apps – plus SaaS and hosted software. The Philippines’ News Agency’s report on the amendment’s passage into law even mentions firewalls as subject to VAT.
The Philippines is not alone in introducing a digital services tax to raise more revenue after the COVID-19 pandemic hurt government revenue – Indonesia used the same logic in 2020 .
But the taxes are controversial because they are seen as a unilateral response to the wider issue of multinational companies picking the jurisdictions in which they’ll pay tax – a practice that erodes national tax bases. The G7 group of nations, and the OECD, think that collaborations that shift tax liabilities to nations where goods and services are acquired and consumed are the most appropriate response, and that harmonising global tax laws to make big tech pay up wherever they do business is a better plan than digital services taxes.
The USA has backed that view of digital services taxes, by announcing it will impose tariffson nations that introduce them – but is yet to enact that plan.
Meanwhile, the process of creating a global approach to multinational tax shenanigans is taking years to agree and implement.
But The Philippines wants more cash in its coffers – and to demonstrate that local businesses aren’t being disadvantaged – ASAP. ®