Salceda wants additional tax on digital services like Netflix, Lazada, FB ads | Inquirer Business
'So as to offset foregone revenues from lower corporate tax rate'

Salceda wants additional tax on digital services like Netflix, Lazada, FB ads

By: - Reporter / @bendeveraINQ
/ 04:16 PM May 18, 2020

MANILA, Philippines — House ways and means committee chair and Albay Rep. Joey Salceda is pushing for taxation on digital services—specifically, subscriptions to video and music streaming apps, ads on social media sites, and making online sales platforms as withholding tax agents—to offset an estimated P120 billion in foregone revenues once the government cuts corporate income taxes to 25 percent to soothe the pain inflicted by COVID-19 on businesses.

Salceda told the Inquirer on Monday that he intended to call these new tax measures as “Netflix tax,” “Facebook ads tax,” and “Lazada tax,” respectively.

In the case of “Netflix tax,” Salceda said the current standard digital services tax slapped on subscriptions worldwide was 5 percent, although he noted that Chile imposes a higher 19 percent.


Salceda said the Philippines might as well slap a new 12-percent tax on subscriptions to video and music streaming sites, a market currently worth about P5 billion.


At present, whatever subscription fees were being collected by apps like Netflix or Spotify weren’t levied any tax by the Philippine government, Salceda noted.

For “Facebook ads tax,” Salceda said the idea was to “require that digital advertisements be made through a country representative of Facebook and Google so it becomes least problematic.”

As such, collection of 12-percent value-added tax (VAT) and corporate income tax among digital advertisers will augment the current revenue base, he explained.

“The big money is in finding a way to tax the advertising on Facebook and Google,” Salceda said, adding that these two tech giants operate like a duopoly in the country as they dominated the online space here.

Citing a model proposed by 2018 Nobel Prize in Economics winner Paul Romer, Salceda said tax on digital advertising will be “based on how much companies earn from displaying the ads in the tax jurisdiction, because that’s where value is created.”

As for the proposed “Lazada tax,” Salceda noted that only 50 percent of vendors who sell their goods and services via online marketplaces like the Alibaba Group’s Lazada, Amazon, and Shopee, among others, pay VAT.


Among online sellers, “around half are fully-compliant [with VAT payments] since they are large taxpayers and accredited shops,” he said.
To capture the still unpaid VAT, Salceda said these online platforms will be tapped to also serve as withholding tax agents of their suppliers.

With sales of the Philippines’ e-commerce sector estimated to reach about P260 billion this year, VAT collections should reach around P30 billion, Salceda said.

Once passed into law, Salceda said the government can block online or digital platforms that will neither pay the right taxes nor comply with tax laws.

For Salceda, these proposed new taxes on all digital platforms in the country being used by Filipino citizens and Philippine residents alike, alongside the pending higher motor vehicle user’s charge (MVUC) pending in the Senate as well as the bigger 5-percent franchise tax on Philippine offshore gaming operators (POGOs) seen hurdling the Lower House soon, can keep revenue streams alive despite the Department of Finance’s (DOF) push to cut the corporate income tax rate to 25 percent by July from 30 percent at present, instead of the original plan to gradually reduce it over a 10-year period.

Based on Salceda’s calculations, the higher MVUC will raise P24 billion, while the so-called POGO tax will generate another P44 billion during the first year of implementation.

Under the DOF’s proposed Corporate Recovery and Tax Incentives for Enterprises Act (Create), new investors will enjoy “targeted, time-bound, and tailor-fitted tax incentives to proactively attract the right types of investment (demand driven led by the Board of Investments, not supply driven, to attach investors leaving China, etc.),” Acting Socioeconomic Planning Secretary Karl Kendrick T. Chua said last week.

An upgraded version of the pending Corporate Income Tax and Incentives Reform Act (Citira), Create will also retain tax perks of existing investors for the next four to nine years, longer than Citira’s 3-7 years, Chua had said.

Create formed part of the economic team’s up to P160-billion Philippine Program for Recovery with Equity and Solidarity or “PH-Progreso” being pitched to Congress in order for the economy to recover quickly.

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First-quarter gross domestic product already shrank by 0.2 percent and the prolonged COVID-19 lockdown during the second quarter was expected to bring the Philippines into recession, with full-year GDP seen declining by 2-3.4 percent in 2020.

TAGS: digital services., House, Joey Salceda, netflix, Spotify, tax, taxation

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