Think tank suggests ‘Netflix tax’ as LGU collections slump

BusinessWorld
February 21, 2021
MANY turned to video streaming services such as Netflix to watch movies, as cinemas remained closed due to quarantine restrictions. — REUTERS

LOCAL GOVERNMENT UNITS (LGUs) should consider imposing an amusement tax on video streaming platforms, after the closure of cinemas, concert venues and theaters resulted in nearly P470 million in foregone revenues last year, a state think tank said.

The National Tax Research Center (NTRC) said amusement tax collections are “relatively insignificant” compared with other tax sources such as real property taxes and local business taxes, but LGUs can still expand the coverage to generate more revenues.

“The coverage of local amusement tax may be broadened to include places that may be considered as places of amusement. In addition, the phrase ‘places of amusement’ must be defined appropriately so as to include other establishments that may be considered as such,” NTRC said in its research journal titled Impact of COVID-19 Pandemic on Local Amusement Tax Collection of LGUs in the Philippines.

In the United States, the NTRC noted some states have explored the possibility of imposing sales taxes on entertainment streaming sites such as Netflix and Amazon Prime Video but there is still no consensus on a tax on these platforms. It cited the telecommunication taxes imposed by South Carolina and Florida on video streaming services, as well as Chicago’s 9% amusement tax on streaming sites.

Congress can review and amend the Local Government Code of 1991 to expand the coverage of local amusement tax, so LGUs can explore other activities that can be covered and raise more revenues, the think tank said.

“There are online streaming shows that can still be classified as sources of amusement. The LGUs can tap these sites as sources of tax revenues as the country enters the chapter of the ‘new normal,’” NTRC added.

Under the Local Government Code, LGUs may impose amusement tax on theaters, cinemas, concert halls, circuses, boxing stadia and other places of amusement at a 10% rate at most, based on the gross receipts from admission fees.

Since the lockdown began in mid-March last year, leisure activities have been restricted, with cinemas, theaters and concert venues still not allowed to operate. This prompted many to turn to streaming services such as Netflix and Amazon Prime Video to watch movies and other shows.

NTRC noted that LGUs especially in Metro Manila have been severely affected by the slump in amusement tax collections. The biggest contributors include the cities of Quezon, Pasay and Makati.

The think tank estimated the closure of movie theaters resulted in P83.74 million of foregone revenue from local amusement taxes. This is only based on four movie screenings daily in 433 cinemas that could have sold 25 P250 tickets.

Tax revenue losses from cinema and event ticket sales of SM Prime Holdings, Inc. alone also resulted in P376 million in foregone income as of end-September 2020.

This is on top of the estimated P9.81 million in foregone revenues from taxes on six concerts scheduled from March 14 to May 20 that were canceled.

“LGUs need a broader range of revenue tools. These should include revenue sources that automatically grow with the economy, and at present live streaming may be closely considered as an additional revenue source of LGUs,” NTRC said.

“However, it is crucial that social and economic issues are taken into consideration so that new funding sources shift costs fairly on those who can most afford to pay,” it added.

The Bureau of Local Government Finance (BLGF) did not respond to queries as of press time.

Data from the BLGF showed provincial, city and municipal treasurers collected P205.71 billion via local taxes in the nine months to September last year, exceeding the revised P193.04-billion target for the entire 2020.

For this year, LGUs were tasked to collect P223.9 billion, up by 8.84% from its actual collections as of end September last year. — Beatrice M. Laforga


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