These Southeast Asian neighbors already charge tax on digital services

On May 18, Albay Representative Joey Salceda who also chairs the House Ways and Means Committee in Congress, graced the headlines when he pushed for taxation on digital services in the Philippines. The Congressman’s proposal specifically targets subscriptions to video and music streaming apps, social media ads, and online selling platforms.

The proposed new taxation bill for digital services will offset a P120-billion revenue that will be lost when the government reduces corporate taxes from 30% to 25% in an effort to help companies that are affected by the pandemic lockdown.

Salceda’s proposal will impose about 12% new tax rate for Netflix, Facebook, and Lazada, the three major services that are being targeted (though related and rival services may also be covered). For Netflix, Salceda noted that the standard digital services tax charged to the service worldwide is 5%, but Chile imposes 19%.

The proposed new digital services tax in the Philippines comes at a time when the usage of such services has been jumping amid the quarantine being imposed nationwide. Most people are locked down in their homes to help avoid the spread of the new coronavirus (Covid-19).

A look at the counterpart scheme across the globe indicates that the Philippines has already been lagging behind in terms of imposing a tax on digital services. Among the pioneers in such taxation are Australia, New Zealand, Norway, and South Korea. Some of the countries that already impose the taxes started doing so as early as 2011.

In the Southeast Asian region, some of our neighboring countries have already been collecting digital service taxes. However, in comparison, the Philippines may be imposing the biggest rate, if Salceda’s proposal for a 12% value-added tax will be implemented.

 

Indonesia

A 10% value-added tax on all digital services particularly those provided by non-resident firms will be imposed by the Indonesian government beginning July 1. The amount to be generated will be part of the government fund that is being used to address the economic challenges brought about by the pandemic.

This is a new regulation, imposing ta to companies that have a significant economic presence in Indonesia. Those will include firms in the sectors of software, data, and multimedia. The new taxation will cover digital products like apps, games, and music/video streaming services, which will then be treated on the same level playing field as other local products that are subject to value-added tax in Indonesia.

In April, amid its lockdown, Indonesia already hinted plans to tax popular services like Netflix and Spotify. The country’s finance authorities have underlined the strong sales growth of digital companies in Indonesia during the Covid-19 pandemic.

Singapore

As early as 2018, some Singaporean legislators have already been proposing to impose a 7% tax on digital services in the country. The idea is to protect the local retailers by leveling the playing field through the Goods and Services Tax (GST) for all services consumed in Singapore. The new GST tax for digital services in Singapore began in January 1, 2020.

Previously, only local services were subjected to 7% GST. This new taxation scheme is set to add up to S$90 million (P3.24 billion) per year to the national revenue. Singaporean authorities highlight that this will be an additional income to offset the increased spending on Singapore’s aging society.

The 7% GST in Singapore covered services like Netflix, Facebook ads, and Google Play downloads and services, among others, in the country.

 

Malaysia

Effective January 1, 2020, Malaysia is charging a 6% service tax on all digital services provided by registered foreign service providers (FSPs) to consumers in the country. The Service Tax (Amendment) Act of 2019 was gazetted into law in July 2019 and took several months to be implemented.

Unlike in Indonesia and Singapore, Malaysia has a more stringent and specific regulation on its digital taxes. But it may be noted that the country is softer when it comes to the rate, which for now is the lowest in the region.

 

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