President Ferdinand Marcos signed the Value-Added Tax (VAT) on Digital Services Law on Wednesday, expected to bring in P105 billion in revenue over the next five years.
President Marcos assured that the new law would not impose new taxes, but rather streamline the collection process to help fund critical infrastructure projects, including the construction of 42,000 classrooms, 6,000 rural health units, and 7,000 kilometers of farm-to-market roads.
“This law is more than ensuring tax compliance,” Mr. Marcos said during the ceremonial signing at Malacañang Palace.
“It is also in support of nation-building … fairness, inclusivity, and progress,” he said.
The VAT on Digital Services Law or Republic Act 12023 would impose a 12 percent VAT on foreign digital service transactions in the Philippines to address revenue losses resulting from unclear taxation rules in the National Internal Revenue Code of 1997, particularly for non-resident digital service providers.
The law covers a broad range of digital services, including digital platforms like Netflix, Spotify, Amazon, and Lazada.
However, digital educational services and subscriptions to educational institutions recognized by the government are exempt from the tax.
It seeks to level the playing field by ensuring that both local businesses and international digital platforms operating in the Philippines pay their fair share of taxes.
“If you are reaping the rewards of a fruitful digital economy here, it is only right that you contribute to its growth,” President Marcos said.
“Whether you are a small tech start-up or a global tech giant, if you are making money in the Philippines, you are part of our community, and with that comes a shared responsibility,” he added.
The President emphasized that the law aims to bridge the gap caused by rapid changes in the digital economy, ensuring that tax responsibilities for digital services are as tangible as the profits they generate.
The Bureau of Internal Revenue (BIR) has been empowered to enforce VAT collection on digital services, imposing penalties on non-compliant providers.
Meanwhile, the Department of Finance, along with the Department of Information and Communications Technology, will issue the implementing rules and regulations within 90 days.
