PRESIDENT Ferdinand Marcos Jr. on Wednesday signed a law imposing value-added taxes (VAT) on foreign digital service providers (DSPs) such as streaming platforms Netflix and Disney+ as well as e-commerce site Amazon.
Republic Act (RA) 12023, or the Value Added Tax (VAT) on Digital Services Law, a priority measure of the administration, imposes a 12-percent VAT on non-resident DSPs to generate additional revenue for the government and to level the playing field for local providers.
RA 12023 covers a wide range of products and services, including search engines, online marketplaces, cloud services, online media and advertising, and digital goods.
President Ferdinand Marcos Jr. signs the Value-Added Tax on Digital Services Law in a ceremony in Malacañan Palace on Oct 2, 2024. PPA POOL PHOTO
It aims to address revenue losses due to ambiguities in existing legislation regarding the taxation of e-commerce transactions, and specifically targets foreign companies not based in the country that continue to provide services to Filipino consumers.
The finance department, which has been given 90 days to issue the law’s implementing rules and regulations from the date of its effectivity, said there would be a 120-day transition period to enable the Bureau of Internal Revenue (BIR) to establish the necessary systems.
In a speech, Marcos said the measure would bridge the gap that a fast-changing digital landscape had created in the country’s tax system.
“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. This includes digital media, digital music, digital video on demand, and digital advertising,” he said.
He claimed that the government had taken a “deliberate and measured approach” to ensure that the tax would not crush innovation or hinder growth, particularly noting that it would not cover education-related digital services.
“We have been precise about where this tax applies, sparing educational and public interest services from its coverages,” Marcos said.
“Online courses, webinars, and other digital educational offerings are not subject to VAT in order to keep education affordable and accessible to all Filipinos,” he added.
President Ferdinand R. Marcos Jr. signs the Value Added Tax (VAT) Digital Service Law in a ceremony at Malacañan Palace on Oct 2, 2024. Standing as witnesses were Senate President Francis G. Escudero, Speaker Ferdinand Martin G. Romualdez, Finance Secretary Ralph, Recto, Information and Communication Technology Secretary John Ivan Uy, Sen. Sherwin Gatchalian, Albay 2nd District Rep. Joey Salceda, Bureau of Internal Revenue (BIR) Commissioner Romeo D. Lumagui Jr., and other government officials. NOEL B. PABALATE/PPA POOL
President Ferdinand R. Marcos Jr. signs the Value Added Tax (VAT) Digital Service Law in a ceremony at Malacañan Palace on Oct 2, 2024. Standing as witnesses were Senate President Francis G. Escudero, Speaker Ferdinand Martin G. Romualdez, Finance Secretary Ralph, Recto, Information and Communication Technology Secretary John Ivan Uy, Sen. Sherwin Gatchalian, Albay 2nd District Rep. Joey Salceda, Bureau of Internal Revenue (BIR) Commissioner Romeo D. Lumagui Jr., and other government officials. NOEL B. PABALATE/PPA POOL
President Ferdinand R. Marcos Jr. signs the Value Added Tax (VAT) Digital Service Law in a ceremony at Malacañan Palace on Oct 2, 2024. Standing as witnesses were Senate President Francis G. Escudero, Speaker Ferdinand Martin G. Romualdez, Finance Secretary Ralph, Recto, Information and Communication Technology Secretary John Ivan Uy, Sen. Sherwin Gatchalian, Albay 2nd District Rep. Joey Salceda, Bureau of Internal Revenue (BIR) Commissioner Romeo D. Lumagui Jr., and other government officials. NOEL B. PABALATE/PPA POOL
President Ferdinand R. Marcos Jr. signs the Value Added Tax (VAT) Digital Service Law in a ceremony at Malacañan Palace on Oct 2, 2024. Standing as witnesses were Senate President Francis G. Escudero, Speaker Ferdinand Martin G. Romualdez, Finance Secretary Ralph, Recto, Information and Communication Technology Secretary John Ivan Uy, Sen. Sherwin Gatchalian, Albay 2nd District Rep. Joey Salceda, Bureau of Internal Revenue (BIR) Commissioner Romeo D. Lumagui Jr., and other government officials. NOEL B. PABALATE/PPA POOL
President Ferdinand R. Marcos Jr. signs the Value Added Tax (VAT) Digital Service Law in a ceremony at Malacañan Palace on Oct 2, 2024. Standing as witnesses were Senate President Francis G. Escudero, Speaker Ferdinand Martin G. Romualdez, Finance Secretary Ralph, Recto, Information and Communication Technology Secretary John Ivan Uy, Sen. Sherwin Gatchalian, Albay 2nd District Rep. Joey Salceda, Bureau of Internal Revenue (BIR) Commissioner Romeo D. Lumagui Jr., and other government officials. NOEL B. PABALATE/PPA POOL
The President said the government expects about P105 billion in revenues over the next five years once the new law takes effect.
The amount was said to be enough to build 42,000 classrooms, more than 6,000 rural health units, and 7,000 kilometers of farm-to-market roads.
In addition, the President said that 5 percent of the revenues generated by RA 12023 would be allocated to the creative industries.
“This means our artists, filmmakers, musicians — the very people who fill our platforms with stories and with content — will directly benefit,” Marcos said.
“It ensures that our creative talents are not just surviving in a competitive digital market but will be allowed to prosper.”
Marcos said the new law also levels the playing field, with both local businesses and international digital platforms now competing on equal terms.
“We will no longer be playing by different sets of rules. If you are reaping the rewards of a fruitful digital economy here, it is only right that you contribute to its growth,” Marcos said.
“Whether you are a small tech startup 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.
BIR Commissioner Romeo Lumagui Jr. said the new law would strengthen the bureau’s authority over digital services.
Foreign DSPs whose gross sales or receipts for the past year have exceeded P3 million are required to register for VAT.
They will also have to designate a representative office or agent to assist in compliance with the provisions of the Tax Code.
Non-compliant businesses will be temporarily suspended.
Lumagui also said that the public may expect minimal price increases in their monthly subscriptions, adding that this would be “a business decision by the service providers.”
Albay 2nd District Rep. Joey Salceda, meanwhile, said the domestic creatives sector would particularly benefit from the new law.
“For the longest time, our VAT system has taxed domestic creatives while allowing foreign companies to sell to Filipinos without any tax,” he said.
“This meant that our local creatives sector was competing with their hands tied behind their backs while foreigners had full access to our market,” he added.
“The law ends this unfair treatment. Same product, same digital space, same consumers, same rules, same taxes. That is the logic and doctrine.”
Salceda said he believed the law would raise at least P8 billion to P12 billion in its first year of implementation.
“The logical next step for foreign digital service providers will be to sell their products through local partners, which will at least allow them to charge their local expenses as input tax,” he continued.
“That is also good because it will create jobs for local affiliates.”
WITH REPORTS FROM REINA TOLENTINO AND ED PAOLO SALTING
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