The Department of Finance (DOF) said that President Marcos will soon sign the law imposing value-added tax (VAT) on foreign digital service providers, such as Netflix.
During a Senate Finance subcommittee hearing on Tuesday, Aug. 27, Finance Secretary Ralph G. Recto said the DOF and the Bureau of Internal Revenue (BIR) are in the process of crafting the implementing rules and regulations (IRR) for this new law.
To recall, the bicameral conference committee approved the bill’s final version on June 27, which sets a 12 percent VAT on foreign digital service providers. This legislation is a priority for the Marcos administration.
“The Congress just passed the VAT on digital services, and that will be signed by the president anytime within the next 30 days,” Recto said.
“So we are now preparing, together with the BIR, the implementing rules and regulations, and we're expected to generate next year, roughly about P20 billion from that,” he added.
However, Recto noted that the new law will apply only to foreign service providers with annual gross revenues exceeding P3 million.
He explained that the purpose of the law is to create a level playing field between online service providers and foreign brick-and-mortar stores operating in the country.
“If your gross sales are less than P3 million a year, you are not vatable. So anything above P3 million is vatable,” Recto said. “The big ones here are services like Netflix, so those are among the bigger ones we’re looking at.”
Last week, senior officials from Netflix met with Recto to express their support for implementing VAT on foreign digital service providers.
Meanwhile, Recto announced during the Senate hearing on Tuesday that the DOF will implement a three percent consumption tax on foreign digital service providers whose gross revenues do not exceed P3 million.
However, he indicated that the DOF and the BIR may delay the full implementation of the three percent levy, beginning instead with a reduced rate of 0.5 percent.