Philippine lawmakers have proposed a tax on digital platforms from Netflix to Facebook and Shopee, as it moves to expand government coffers by tapping into the country’s growing digital economy that got a boost as people stayed home during the 66-day coronavirus lockdown period.
Congressman Joey Salceda, who chairs the powerful Committee on Ways and Means in the House of Representatives, said on Tuesday the new tax measures would raise 30 billion pesos (S$840 million).
This could “plug” revenue losses when another proposed law to reduce corporate tax from 30 to 25 per cent kicks in, and will also offset government spending of 275 billion pesos during the pandemic.
Salceda, former research chief of global bank Ing Barings, claimed House Bill 6765 would merely plug “loopholes” by “establishing a fiscal regime for the digital economy”.
He noted that advertisements on Facebook and Google and half of the vendors selling goods on Lazada, Amazon and Shopee to Filipinos do not pay the 12 per cent value-added tax (VAT) that local bricks-and-mortar retailers do.
But criticism against the plan has emerged on social media, with co-founder and owner of game development start-up Muramasa Games, Ignacio Javellana, asking if a tax levied on firms would end up being borne by consumers.
“They really need to study very clearly how these will impact an already limping spending capacity of digital Filipinos. In the end [it’s the] consumer who ends up having to suffer through these additional taxes,” Javellana said.
In 2017, new taxes were imposed on liquor, all sweetened drinks except milk, petroleum products, tobacco, documentary stamps, foreign currency deposits, capital gains on non-traded stocks, all stock transactions and cosmetic procedures.
However, the government has lowered all personal income tax rates, exempted those earning below 250,000 pesos, lowered estate tax and donor’s tax.
Salceda did not detail how much these online firms were earning from Filipinos, who are avid online shoppers.
Hootsuite, a social media management platform based in Canada, estimated in a report on the global e-commerce industry that as of Jan 2020, the Philippines had 73 million social media users, of which 70 per cent had bought something online in the month before the survey.
Filipinos who bought consumer goods online in the year 2018 had spent an average of US$18 (S$25), it added. A report led by Google released last year found that the internet economy made up 2.1 per cent of gross domestic product (GDP) in the Philippines, and could be equivalent to 5.3 per cent of GDP by 2025.
To ensure compliance, Salceda suggested that all foreign companies wishing to offer goods and services in the country should put up a “representative office” in Manila and those who do not, or ignore the proposed tax law, would be blocked from being accessed by Filipinos online.
In a previous interview with the Philippine Daily Inquirer, Salceda said he would call his new tax measures the “Netflix tax”, “Facebook ads tax”, and “Lazada tax”, to differentiate between the various platforms.
The text of his measure has not been released, but Salceda has mentioned a possible 12 per cent tax, although he noted that the average tax worldwide for subscription to streaming services was 5 per cent while Chile has a 19 per cent tax – which is only 1 per cent lower than the tax Manila imposes on luxury goods like yachts, perfumes and jewellery.
Lazada Philippines, owned by Alibaba which also owns the South China Morning Post, could not be reached for comment. Inanc Balci, who co-founded the e-commerce platform in the Philippines, said he was not in a position to comment since he left the company 18 months ago.
The CEO of Lazada in the Philippines is Raymond Alimurung, who is known to be politically well-connected. He is married to Quezon City mayor Joy Belmonte, whose father is former Speaker of the House Felicano Belmonte, Jnr, and whose cousin is incumbent congressman Christopher “Kit” Belmonte.
Alimurung did not respond to a request for comment.
Chester Ong, a business owner in Manila, called the proposal “idiotic”, saying the government should instead tax online gaming companies (Pogos), which cater mainly to gamblers from China.
“Go after the Pogos,” Ong said. “Netflix, Lazada, Spotify, Google, et cetera, are doing a service to Filipinos. Why tax them?”
In February, Sixto Dy, Jnr, the deputy commissioner of the Bureau of Internal Revenue, told senators that the agency had failed to collect 50 billion pesos from Pogo operators, as 50 of the 60 of their offices are based abroad.
“100 per cent of the offshore-based licensees are not paying franchise tax. All of them,” Dy said.
Ong, a Manila-born Filipino of Chinese descent, said: “The Pogos do not provide jobs to Filipinos, they are involved in a lot of irregularities, we did not want them in the first place, and yet they get away with it and get preferential treatment.”
Start-up owner Javellana said there should be transparency on how well the government was taxing Pogos, and how the money was being spent on the pandemic.
“As soon as the government can validate and verify where all of this money is going, then they are more than welcome to start taxing additional entertainment services as they see fit,” said Javellana, who also works as a digital marketing consultant. “For now, stay away from my goddamn Netflix and Spotify.”
This article was first published in South China Morning Post.