Why your Netflix subscription has gone up

Ever noticed how much of our lives now happens online? Over the past few years, we’ve witnessed the growth of the digital economy. Digital services have become the primary recourse of most of us, not just corporations but also startups, freelancers, employees, and even ordinary consumers.

Picture a typical Filipino worker unwinding after a long day by streaming Netflix, or a small local business running Facebook ads to attract customers. Here's the kicker: these digital services operating from abroad were largely untaxed in the Philippines.

Enter Republic Act (RA) No. 12023.

What is RA No. 12023?

RA No. 12023 imposes a 12% Value-Added Tax (VAT) on digital services consumed in the Philippines and provided by non-resident digital service providers (NRDSPs). Thus, digital giants like Netflix, Facebook, and Google are now subject to tax.

Digital services supplied over the internet or other electronic networks includes, but is not limited to online search engines; online marketplace or e-marketplace; cloud services; online media and advertising; online platforms; and digital goods.

After signing the law, President Ferdinand “Bongbong” Marcos Jr. claimed that RA 12023 can generate about PHP 105 billion in revenue in the next five years — enough to build thousands of classrooms, health units, and roads. Sounds promising, right? But let's dig deeper.

How RA No. 12023 affects businesses

In Business-to-Business (B2B) transactions, the Philippine-based business is responsible for accounting and remitting the 12% VAT under a reverse charge mechanism.

For instance, Infinity Naturals, a Filipino skincare brand, wants to run an online advertising campaign worth PHP 10,000 on Facebook Ads to promote its new product.

Infinity Naturals will pay Facebook the invoice amount (exclusive of VAT). Due to RA 12023, Infinity Naturals is now required to withhold and remit the 12% VAT to the Bureau of Internal Revenue (BIR), amounting to PHP 1,200 (PHP 10,000 x 0.12).

If Infinity Naturals is VAT-registered, it can claim this amount as an input tax credit, so the overall cost remains the same. However, it must now bear the burden of compliance.

What about us, the consumers?

Conversely, in Business-to-Consumer (B2C) transactions, the NRDSP is directly liable for the VAT and must file and remit it through the VAT on Digital Services (VDS) Portal.

For example, Juan, a Filipino Netflix subscriber, will now pay more for their monthly plan, because Netflix is required to collect the 12% VAT and remit it to the BIR. They are about to feel the pinch now. Why? Take a look at how Netflix’s subscription costs have changed before and after this new law: The Mobile plan jumped from PHP 149 to PHP 169 per month, while the Basic plan increased from PHP 249 to PHP 279 monthly. Meanwhile, the Standard plan saw a significant bump from PHP 399 to PHP 449 per month, and the Premium plan rose from PHP 549 to PHP 619 monthly under the new RA 12023 regulations.

Although Netflix will be responsible for filing its VAT returns, Juan ultimately foots the bill. It's not a huge leap now, but when every subscription, app, game, and cloud service goes up by 12%, the total adds up.

If you’re an ordinary Filipino like Juan, it begs the question: Can you stretch your budget far enough to afford both your essentials and small comforts, such as Netflix subscriptions?

What is the endgame for RA 12023?

On paper, RA 12023 seems fair. Even neighboring countries like Singapore, Indonesia, Malaysia, and Thailand have already taken similar steps.

If local businesses are taxed, why should foreign digital giants be exempted?  To quote Finance Secretary Ralph Recto, “[the law aims to] foster fairness, competition, and inclusion in our tax system and marketplace.”

But Filipino consumers and businesses alike are crying foul. Entrepreneurs are met with more red tape, and consumers get heaps of silent price increases.

If the government uses these funds appropriately – pouring them into the much-needed infrastructure, education, and healthcare – then perhaps, just perhaps, our collective sacrifice might truly improve lives.

But as Filipinos, we’ve already seen promises made and broken. We know the pain of the deductions in our paychecks. Now, the question is: Will we ever truly see the fruits of what we pay for? Or will this just be another loss, leaving us to wonder what could have been? That remains to be seen.