The Department of Finance (DOF) and the Bureau of Internal Revenue (BIR) welcomed the signing of Republic Act 12023, or the Value-Added Tax (VAT) on Digital Services Law, as a crucial step toward promoting fairness in the Philippines’ digital economy.
In a Palace briefing on Wednesday, DOF Director Nina Asuncion and BIR Commissioner Romeo Lumagui, Jr. emphasized that the law addresses long-standing tax disparities between local and foreign digital service providers (DSPs).
Under the previous system, local businesses paid VAT while foreign competitors were not taxed, leading to unfair competition. “This inequitable treatment is against the principles of fairness in taxation,” Asuncion said.
“Republic Act 12023 levels the playing field between local and foreign businesses, particularly those that cannot shift to a digital platform,” she added.
Lumagui echoed this sentiment, saying the law ensures all DSPs, whether local or foreign, are subject to the same 12-percent VAT. “This new law corrects that imbalance,” he said.
“It promotes fair competition and benefits consumers with improved services and fairer pricing,” he added.
The law strengthens the BIR’s authority to collect VAT from DSPs operating in the Philippines and outlines compliance requirements for both resident and non-resident providers.
DSPs with annual gross sales exceeding P3 million are required to register under the VAT system. The BIR is also empowered to block non-compliant DSPs through its Oplan Kandado program.
Asuncion noted that the law, which applies to digital services such as online search engines, cloud services, and e-marketplaces, will generate significant revenue for public services and infrastructure.
The measure is expected to contribute more than P100 billion in revenues in the next five years.
Both officials stressed that the law does not impose a new tax, but streamlines the existing system to ensure foreign DSPs are properly taxed.
Exemptions include educational services, online courses, and financial institutions.
The law’s implementing rules and regulations will be issued within 90 days, and VAT collection on digital services will begin 120 days after that.
“This landmark legislation aligns the Philippines with international standards like the OECD’s VAT Digital Toolkit for Asia-Pacific,” Lumagui said.
