House passes bill imposing tax on digital transactions, subscription

Fans of online shopping and Netflix may soon find themselves shelling out more than the usual after the House of Representatives on Monday, Nov. 14, approved on third reading House Bill 4122 which imposes tax on digital transactions and subscriptions.

DIGITAL-TRANSACTIONS

The proposed legislation applies value-added tax (VAT) on gross receipts on digital transactions and subscriptions. The entities liable for the VAT covers those who conduct digital and electronic business of digital or electronic in nature.

Ang Probinsyano party-list representative Alfred delos Santos, one of the authors of the bill, said the tax measure would “add assurance that government programs will get done because funds are available.”

“If these bills get Senate approval soon, they could take effect next year and address the funding priorities of the 2023 national budget,” the lawmaker said.

“Crucial to effective implementation of the digital transaction VAT are the VAT registration and the invoicing. Online seminars are exempted from the digital VAT,” the lawmaker said.

Aside from generating revenues for the government, the authors said another objective of the bill is to level the playing field by clarifying the imposition of VAT on digital service providers.

Under the proposed law, the VAT on electronic or online sale will be imposed on services such as:

  • Online advertisement
  • Digital subscription-based streaming services like those offered by Netflix
  • Supply of all other online services   

The measure requires “non-resident” digital service providers like Netflix to collect and remit the tax on the transactions that pass through their platform.

A 5% VAT will be imposed on non-resident digital service providers, otherwise a 12-percent VAT is imposed. They are, however, not allowed to claim creditable input tax.

The proposed law requires digital service providers to register for VAT if gross sales or receipts for the past year have exceeded P3 million.

To ensure compliance with the law, digital service providers will be required to designate a representative office or agent that has to be resident corporation under Philippine law.

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