THE Philippine Chamber of Commerce and Industry (PCCI) welcomed the enactment of Republic Act (RA) 12023, which imposes a 12-percent value-added tax (VAT) on foreign digital service providers (DSPs), saying the new law promotes fair competition and will boost domestic businesses of similar nature.
President Ferdinand Marcos Jr. on Wednesday in Malacañang signed RA 12023, which aims to generate additional revenue for the government and level the playing field for local DSPs.
“By imposing VAT on both local and foreign digital services, the government is creating a more competitive environment for local digital service providers and greater incentives for them to innovate and improve their offerings,” PCCI President Consul Enunina Mangio said. “It could also encourage local service providers to formalize their businesses, thereby enhancing their credibility and building consumer trust in their services.”
Subject to VAT coverage are electronic or online sale of services, such as online advertisement services and provision for digital advertising space; digital services in exchange for a regular subscription fee; and supply of other electronic and online services that can be delivered through the internet.
Also included are cloud services or platforms with streaming and downloadable digital content, such as Netflix, Amazon, Disney+, HBO Go, Apple TV, among others, and online marketplaces such as Lazada, Shopee, Amazon, and the like.
The new law will likewise set aside 5 percent of revenues for the Philippine creative industry to provide direct benefits to Filipino artists, including musicians and filmmakers.
Other countries like Singapore, Indonesia and Malaysia started imposing digital tax to foreign providers in 2020, while Thailand followed suit in 2021.
The Philippine government expects to generate P105 billion in revenues from the digital tax law over the next five years. The Department of Finance says it stands to collect approximately P7.25 billion by 2025, assuming a 50-percent compliance rate.
The law exempts educational and public-interest services, such as online courses, webinars and other digital content for educational purposes.
Banks and nonbank financial intermediaries performing quasi-banking functions, including those rendered on digital platforms, are also not subject to pay digital tax.
RA 12023 is part of government efforts to update the country’s tax system and improve the efficiency of tax collection in the growing digital economy.
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