President Bongbong Marcos Jr. recently signed a new law subjecting all foreign digital service providers (DSP) like Spotify, Disney+, and Amazon to a 12% value-added tax, in order to bring balance between local and foreign e-commerce firms in tax collections.
Under this new law, or Republic Act 12023, foreign DSPs will have to pay the required VAT whether or not their services are rendered outside the country as long as it is being consumed in the Philippines.
It will cover digital services like online marketplaces, cloud services, digital advertising, digital goods and online streaming platforms.
However, the VAT will exempt online institutions and courses accredited by the Department of Education (DepEd), Commission on Higher Education (CHED), and Technical Education and Skills Development Authority (TESDA).
Moreover, the Bureau of Internal Revenue (BIR) clarified that this was not a new tax, rather a step in “ensuring fairness on competition” in the country’s evolving digital economy.
Prior to the signing of the law, local DSPs have complied with the imposed VAT while foreign DSPs have not despite profiting from Filipino consumers.
BIR Commissioner Romeo Lumagui Jr. said that the new law will strengthen the bureau’s authority in collecting VAT from digital transactions. It will also clarify to DSPs how they can comply with the VAT requirement written under the National Internal Revenue Code.
Furthermore, Lumagui said that the law promotes fair competition between local and foreign DSPs now that they will be competing “on equal footing.”
The VAT is expected to generate around P105 billion from 2024 to 2028, the first five years of its implementation. Meanwhile, lawmakers are looking to use 5% of this amount for the local creative industries.
Aside from the Philippines, other Southeast Asian countries like Thailand, Malaysia, and Singapore have a similar law on digital service providers.
Newly-signed law to impose 12% VAT on foreign digital services
