Pres. Ferdinand R. Marcos Jr. signed on Wednesday, Oct. 2, into law Republic Act 12023 or the Value-Added Tax on Digital Services.
Department of Finance (DOF) secretary Ralph G. Recto said the enactment of a new law that will ensure equitable tax treatment on all digital businesses providing services in the Philippines.
The DOF said the new legislation will level the playing field between local and foreign digital service providers (DSPs) by mandating a 12% value-added tax on all digital services consumed in the Philippines. At present, only local DSPs are subject to paying the 12% value-added tax.
Digital services include online search engines, marketplaces, cloud services, online media, online advertising, and digital goods.
“With this law, we say that if your presence in the Philippine market is as real as your profits, then your tax responsibility should also be equally tangible. But make no mistake. We are not imposing new taxes. We are simply strengthening the authority and streamlining the process of the BIR to collect value-added tax on digital services,” Marcos Jr. said during the ceremonial signing of the law.
For his part, Recto said the measure 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,” he said.
“By doing this, we foster fairness, competition, and inclusion in our tax system and marketplace. Whether you are a local entrepreneur or a global giant, everyone will play by the same rules,” he added.
The new law strengthens the Bureau of Internal Revenue’s (BIR) authority to collect the value-added tax on digital services by providing measures on how foreign DSPs can comply with the value-added tax requirements under the Philippine Tax Code.
Foreign DSPs whose gross sales or receipts for the past year have exceeded P3 million are required to register for value-added tax.
Furthermore, 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.
Under the new law, a 5% value-added tax is imposed on registered foreign DSPs providing services to the government.
However, it exempts educational services, including courses, webinars, and other digital educational offerings, from value-added tax.
Moreover, digital services sold on a subscription basis to educational institutions recognized by the Department of Education (DepEd), the Commission on Higher Education (CHED), and state universities and colleges (SUCs) are also not subject to value-added tax.
With the new law in place, the DOF expects an estimated revenue collection of P7.25 billion in 2025, at 50% 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, 5% 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 value-added tax is imposed on foreign DSPs.
The IRR will be promulgated 90 days from the effectivity of the new law.
