On October 2, President Ferdinand Marcos Jr. signed into legislation Republic Act 112023, thereby introducing a 12 p.c 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 rules as native suppliers comparable to iWantTFC and Vivamax. Proponents of the brand new legislation estimate that the VAT may 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 stage enjoying area, nevertheless, it could produce unintended penalties that considerably offset the specified income development. International suppliers like HBO and Netflix, which at the moment supply a few of the most inexpensive subscription charges in Southeast Asia, with month-to-month charges as little as PHP 199 ($3.54) and PHP 395 ($7.03) respectively,​ could nicely improve their subscription costs to offset the brand new tax burden. Such will increase, in flip, may considerably scale back the numbers of paid subscribers, thus undermining the technology of extra income, as Filipino shoppers merely flip increasingly to pirated content material.

A broad consensus helps the goals of RA112023. The imposition of the VAT on overseas digital service suppliers aligns with worldwide traits geared toward taxing digital providers within the locations the place they’re consumed. Extra particularly, it builds on rules fashioned 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 earnings generated from providers supplied within the Philippines—regardless of being delivered by overseas entities—was nonetheless topic to native taxes. The courtroom decided that important elements of those providers, comparable to the usage of gateway services throughout the nation, justified the imposition of taxes on the earnings earned. This precedent reinforces the precept of the “benefits-received idea,” the place the jurisdiction that gives the important providers for earnings technology has the proper to tax that earnings.

Income Memorandum Round (RMC) No. 5-2024 additional strengthens this precept by clarifying that cross-border providers supplied to Philippine firms are topic to VAT and last withholding tax, even when the supplier is predicated exterior the nation. Which means firms like HBO and Netflix won’t solely should adjust to new VAT rules but additionally withhold tax obligations when offering providers to Filipino shoppers.

Nonetheless, to additional the goals of RA112023, the Philippine authorities must ramp up its battle in opposition to piracy. Based on a current survey, seven in ten Filipinos eat pirated content material, and ​increased subscription charges would more than likely push much more of them in that route.  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 problem. 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 may require site-blocking measures that would 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 introduced plans to amend the IP Code to be able to improve the Mental Property Workplace of the Philippines (IPOPHL)’s capacity to dam web sites that have interaction in piracy. This transfer goals to guard inventive 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 mixture of rising prices and prevalence of pirated content material may pose a major problem for streaming firms trying to keep 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 steadiness compliance with these new tax rules in opposition to the chance of shedding subscribers to piracy, notably in a market the place affordability and competitors are demonstrated key components. 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.