On October 2, President Ferdinand Marcos Jr. signed into legislation Republic Act 112023, thereby introducing a 12 % value-added tax (VAT) on digital providers. This legislation addresses a authorized hole that beforehand exempted non-resident streaming firms from paying VAT on providers consumed throughout the nation. Due to RA112023, platforms like Netflix and HBO at the moment are required to stick to the identical tax laws as native suppliers comparable to iWantTFC and Vivamax. Proponents of the brand new legislation estimate that the VAT might generate an extra PHP 83.8 billion ($1.49 billion) in income between 2024 and 2028, supporting authorities infrastructure and social tasks.
Whereas this legislation goals to create a degree enjoying discipline, nonetheless, it might produce unintended penalties that considerably offset the specified income development. International suppliers like HBO and Netflix, which at the moment provide a few of the most affordable subscription charges in Southeast Asia, with month-to-month charges as low as PHP 199 ($3.54) and PHP 395 ($7.03) respectively, could effectively improve their subscription costs to offset the brand new tax burden. Such will increase, in flip, might considerably scale back the numbers of paid subscribers, thus undermining the era of further income, as Filipino shoppers merely flip an increasing number of to pirated content material.
A broad consensus helps the targets of RA112023. The imposition of the VAT on international digital service suppliers aligns with international trends aimed toward taxing digital providers within the locations the place they’re consumed. Extra particularly, it builds on laws shaped in response to the Aces Philippines Mobile Satellite tv for pc Corp. vs. Commissioner of Inner Income case (G.R. No. 226680, August 30, 2022). In that case, the Supreme Courtroom dominated that revenue generated from providers offered within the Philippines—regardless of being delivered by international entities—was nonetheless topic to native taxes. The court docket decided that crucial parts of those providers, comparable to using gateway amenities throughout the nation, justified the imposition of taxes on the revenue earned. This precedent reinforces the precept of the “benefits-received theory,” the place the jurisdiction that gives the important providers for revenue era has the proper to tax that revenue.
Revenue Memorandum Circular (RMC) No. 5-2024 additional strengthens this precept by clarifying that cross-border providers offered to Philippine firms are topic to VAT and closing withholding tax, even when the supplier is predicated outdoors the nation. Which means that firms like HBO and Netflix is not going to solely should adjust to new VAT laws but additionally withhold tax obligations when offering providers to Filipino shoppers.
However, to additional the targets of RA112023, the Philippine authorities must ramp up its battle in opposition to piracy. In keeping with a recent survey, seven in ten Filipinos devour pirated content material, and increased subscription charges would more than likely push much more of them in that course. The Asia Video Trade Affiliation’s Coalition In opposition to Piracy, which incorporates HBO, Disney and Fox as members, has highlighted the seriousness of this challenge. Alongside lawmakers together with senators Jinggoy Estrada and Ramon Revilla Jr. and Home Consultant Joey Salceda, they’re advocating for amendments to the Philippines’ Mental Property (IP) Code, together with one that might require site-blocking measures that might assist curb the prevalence of pirated content material on-line.
The federal government has acknowledged the urgency of addressing the nation’s excessive piracy charges. In July, Commerce and Trade Secretary Alfredo Pascual announced plans to amend the IP Code so as to improve the Mental Property Workplace of the Philippines (IPOPHL)’s skill to dam web sites that have interaction in piracy. This transfer goals to guard artistic industries hit laborious by unlawful content material sharing, particularly because the COVID-19 pandemic. Senate Payments 2150 and 2385, in parallel with Home Invoice 7300, additional this initiative by increasing IPOPHL’s authority to collaborate with web service suppliers in blocking infringing web sites and imposing fines of as much as PHP 1 million ($18,000) for violations. With out the implementation of those legal guidelines, the mix of rising prices and prevalence of pirated content material might pose a major problem for streaming firms seeking to preserve their already dwindling subscriber base.
Whereas the brand new legislation goals to create a extra equitable tax system for digital providers, it additionally poses new challenges for the federal government, service suppliers and shoppers. Streaming firms might want to stability compliance with these new tax laws in opposition to the danger of dropping subscribers to piracy, notably in a market the place affordability and competition are demonstrated key elements. Implementation of amendments to the Philippines’ IP Code is essential to making sure that the nation’s digital content material market stays sustainable within the face of rising prices.
