Salceda bill seeks to tax Netflix, Spotify, other digital services

House Committee on Ways and Means chair Joey Salceda on Tuesday filed a measure seeking to subject digital services like Netflix, Spotify and Lazada to taxation which he said will generate the government as much as P29.1 billion yearly in incremental revenues.

House Bill 6765, which Salceda dubbed as the proposed "Digital Economy Taxation Act of 2020," aims to "capture the value created by the digital economy better in the country's tax system."

According to Salceda, the tax administration measures under the bill are "not new taxes," but only require industries in the digital economy to "pay their fair share."

He said subscription-based companies like Netflix and Spotify, even though they are available in the Philippines, do not pay taxes.

The advertising services paid by networks in the Philippines are likewise subject to value-added tax (VAT), while those of Google and Facebook are not, he added.

"These are tax administration measures that we hope will capture the value more fairly, para pantay naman sa lahat ng negosyo sa Pilipinas," he said.

"[This is] especially when local businesses are struggling due to COVID-19, and there are these companies that are making a killing because of isolation, but are not paying enough taxes," he added.

Under Salceda's measure, network orchestrators like Grab, Angkas and other similar services will be made withholding agents for income taxes to ease their partners of the burden of paying their own taxes and encourage tax compliance.

Network orchestrators for lease services like AirBnB, and electronic commerce platforms like Lazada and Shopee will likewise be made withholding agents for VAT.

Services rendered electronically in the course of trade or business are likewise liable to VAT.

Meanwhile, digital advertising by internet websites like Google and Facebook and subscription-based services like Netflix and Spotify are subject to VAT.

The measure also requires entities that render digital services to do so through a resident agent or a representative office in the Philippines "to address the issue of companies having significant presence in the country without having a physical establishment in the Philippines not being liable for tax and regulatory purposes."

Salceda pointed out that his tax proposal will not affect social media users who do not advertise on the target platforms.

"Kung regular user ka lang naman, hindi ka naman apektado. If anything, these social media platforms need you, the user, to keep using, so that they could earn from digital advertising, the same way TV networks need viewers so they could get advertising contracts," he said.

"So, the usual social media channels will definitely remain free. The whole idea that somehow, this bill will make social media networks charge users who don’t advertise, that’s a bad reading of the proposal," he added.

Salceda said these tax administration measures are already being implemented in India and Indonesia, and these companies still do well in these countries.

Most importantly, Salceda said this measure will help the government in finding new revenue sources.

"I have a POGO tax proposal, a road users’ tax proposal that will not erode economic growth and will not tax the poor at all. I estimate that those proposals will yield around P65 to P70 billion a year if BIR and the other collection agencies could make good with collection efficiency," he said.

"This is about another P30 billion. The House Ways and Means Committee is already solving a P100-billion share of the problem of revenues," he added. —LDF, GMA News