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With such taxes, tech giants such as Facebook, Google and Youtube or Netflix will be required 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.
This measure would impose a 12% VAT to digital sale of services such as online advertisements, subscription services, and supply of other electronic and online services that can be delivered through the internet such as mobile applications, online marketplaces, online licensing for software and webcasts, among others.
It will also add a new section in the National Internal Revenue Code of 1997 that will require foreign digital service providers (DSPs) to collect and remit VAT for all transactions that go through their platforms. However, it exempts books and other printed materials sold online along with online courses and webinars by accredited private schools from the 12% VAT.
There is another exemption for small businesses meaning if your sales are below PHP3 million (around 50,300 EUR), you are exempt from paying or filing VAT. If your net income as a sole proprietor is below PHP250,000 (around 4,200 EUR), you are also exempt from paying and filing income taxes. It means the small online seller will not be taxed.
The law also provides for a 180-day transition period for the Philippines tax authority to establish implementation systems before VAT is imposed.
The proposed tax is expected to generate PHP 25 billion (around 420 millions EUR) in government revenues annually based on initial estimates from the Department of Finance. The pandemic has accelerated the growth of e-commerce, online streaming and other digital services in the Philippines and Filipinos are among the heaviest social media users in the world.
Should you need further information about taxation in the Philippines, please contact us at contact@orbis-alliance.com. We will get back to you very shortly.