By JOCELYN MONTEMAYOR and ANGELA CELIS
President Marcos Jr. yesterday signed into law Republic Act 12023 or the Value Added Tax (VAT) on Digital Services Law which imposes a 12 percent VAT on non-resident digital service providers (DSPs) to generate additional revenue for the government and to level the playing field for local providers.
The President, in signing the new law in a ceremony in Malacanang, emphasized this is not a new tax as VAT is now included in current products and services.
The law would, however, allow the Bureau of Internal Revenue to collect fees on digital platforms that provide services in the Philippines.
“We are simply strengthening the authority and streamlining the process of the BIR to collect value-added tax on digital services. Local business and international digital platforms now compete on equal terms,” Marcos said.
“If you are reaping the rewards of a fruitful digital economy here, it is only right that you contribute also to its growth. After all, whether you are a small tech start-up or a global tech giant based halfway around the world, if you are making money here in the Philippines, you are part of our community. And with that comes a shared responsibility,” he added.
The President said the new law would allow government to generate an additional P105 billion in revenues which it could use for the construction of around 42,000 classrooms, 6,000 rural health units and 7,000-kilometer farm-to-market roads or fund government programs to support the creative industry to ensure that the “creative talents are not just surviving in a competitive digital market, but will be allowed to prosper.”
Marcos expressed confidence the VAT on DSPs will neither turn off foreign investors nor hinder innovation and growth in the country.
BIR Commissioner Romeo Lumagui Jr., in a briefing after the signing ceremony, said t in the previous tax system, only digital services purchased locally were subject to a 12-percent VAT while those provided by foreign businesses remotely were not imposed with the same.
Lumagui said previously, DSPs which do not have physical presence in the Philippines do not pay taxes.
He said the new law now ensures fairness in competition under the rapidly evolving digital economy.
“This new law corrects that imbalance by subjecting all digital service providers, both local and foreign, to the same 12 percent value added tax…This law promotes (fair) competition and trade (and ensures) local and foreign DSPs compete on equal footing. In doing so, we create a more competitive marketplace where consumers will ultimately benefit from improved services and fairer pricing,” he said.
Lumagui said the law also addresses revenue losses due to ambiguities in existing legislation regarding the taxation of e-commerce transactions.
Lumagui said price increase on digital services would only be minimal, noting it is up to the private businesses to determine whether or not they would adjust their current rates.
“There could be a price increase but again I think it would be minimal, not the whole 12 percent is automatically added to commensurate the same rate,” he said.
Meanwhile, in a statement yesterday, Finance Secretary Ralph Recto lauded the enactment of the new law, as it will ensure equitable tax treatment on all digital businesses providing services in the Philippines and boost much-needed revenue collections to aid national development.
“This is not a new tax mechanism. We are just merely correcting the current system that creates an unfair advantage to foreign digital service providers and weakens the country’s tax base, forgoing much-needed revenues that could have been used to fund crucial public services, infrastructure, and other socio-economic programs,” Recto said.
Foreign DSPs whose gross sales or receipts for the past year have exceeded P3 million are required to register for value-added tax.
Foreign DSPs are required to designate a representative office or agent——a resident corporation registered under Philippine law to assist in compliance with the provisions of the Tax Code. Non-compliant businesses will be temporarily suspended.
In the interest of public service delivery, a five percent VAT is imposed on registered foreign DSPs providing services to the government.
To support the administration’s priority to keep education accessible and affordable for all, the law exempts educational services, including courses, webinars and other digital educational offerings, from VAT.
Digital services sold on a subscription basis to educational institutions recognized by the Department of Education, the Commission on Higher Education and state universities and colleges are also not subject to VAT.
With the new law in place, the DOF expects an estimated revenue collection of P7.25 billion in 2025, at 50 percent compliance.
From 2025 to 2029, the estimated revenues to be collected from the measure amounts to around P102.12 billion.
For the next five years from the law’s effectivity, five percent of the collected revenues will be used exclusively for the local creative industries’ development to foster innovation and empower the next generation of Filipino creators and entrepreneurs.
There will be a transition period of 120 days from the effectivity of the law’s implementing rules and regulations (IRR) to enable the BIR to establish implementation systems before VAT is imposed on foreign DSPs.
The IRR will be promulgated 90 days from the effectivity of the Act.
