Philippines confirms tax on digital transactions

Philippines confirms tax on digital transactions

The third and final reading of a bill imposing a 12 percent value-added tax (VAT) on digital transactions in the Philippines has taken place in the country’s Lower House of Congress, underlining a trend that seems to be extending to a number of countries in the Asia-Pacific region.

With the vote now confirmed by a hefty majority the country aims to impose taxes on tech giants like Facebook, Google, Netflix, Spotify and YouTube. According to Reuters, this means that foreign digital service providers will need to assess, collect and remit VAT on the transactions that go through their platform.

The bill passed a committee stage in July. The Senate is also expected to vote on the bill, the aim of which is to raise about $579 million to help fund government measures to fight the coronavirus pandemic.

This tax is undoubtedly a potentially major money earner. It’s well known that the Philippines is home to some of the heaviest social media users in the world, attracting many of the big names that are soon to face VAT demands.

However, it’s not clear how the firms targeted will respond. Nor does there seem to have been any indication when and if the new VAT regime will come to an end.

This tax follows similar moves by other countries in the region to generate revenues from popular digital services. Late last year we reported Indonesian plans for a 10 percent VAT to be imposed on sales by a number of technology firms. This too seems to have been partly driven by the need to compensate for a multi-billion dollar government outlay on dealing with Covid-19.

In addition, early this month Thailand started collecting VAT from foreign tech companies.

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