Senate President Francis ‘Chiz’ G. Escudero said the bill imposing a 12-percent value-added tax (VAT) on digital transactions would level the playing field for local and foreign digital service providers (DSPs), streamline tax administration and shore up government coffers by at least P80-B in revenues.
The VAT on Digital Transactions, a priority measure of the administration, is set to be signed by President Ferdinand Marcos on October 2 and is envisioned to capture revenues lost due to the vagueness of existing laws pertaining to taxation of e-commerce transactions, particularly foreign companies which are not based in the Philippines but provide services to local consumers.
“Lahat ng negosyo, malaki man o maliit, ay nagbabayad ng buwis. Hindi naman yata makatarungan na ang mga higanteng negosyante na hindi naka-base sa Pilipinas pero kumikita ng malaki sa pagbenta ng kanilang mga serbisyo sa mga Pilipino ay hindi sakop ng parehas na buwis. Pinapantay lang nitong bagong batas ang obligasyon sa pagbayad ng buwis sa lahat ng kumikita dito sa bansa,” Escudero said.
The Senate President noted that other nations, including the neighboring countries of the Philippines, have been imposing the same tax on digital services and transactions now that consumption of the same has become almost universal.
Citing projections by the Department of Finance, Escudero said the imposition of VAT on these digital transactions could generate anywhere between P80B and P145-B for the period of 2025 to 2028, depending on the compliance of the subject taxpayers.
The new measure amends certain provisions of the National Internal Revenue Code (NIRC) of 1997 to make the collection of taxes more equitable and attuned to the changes in the economic landscape brought about by rapid advances in the use of technology.
Under the enrolled bill, a consolidated version of House Bill No. 4122 and Senate Bill No. 2528, that was transmitted to the President for review and signature late last August, digital services are now explicitly part of the coverage of Philippine tax law and even non-resident DSPs who have no physical presence in the country but render services within the Philippines and whose services are consumed domestically will be covered by the law.
“It cannot be denied that the use and consumption of digital products and services within the Philippines has grown exponentially over the past decade and such economic activity from the use of new technology has become more prevalent. The amendments to the NIRC are merely an updating of the law to make it more attuned to present times,” Escudero said.
Section 108-A of the NIRC now mandates the imposition of the VAT on digital services consumed in the Philippines, whether these are provided by a resident or non-resident DSP.
Digital service is defined as any service supplied over the internet or other electronic network with the use of information technology and where the supply of the service is essentially automated.
These include online search engines, online marketplace or e-marketplace, cloud service, online media and advertising, online platforms, or digital goods.
This means popular streaming services such as Netflix and Disney+, and online shopping sites such as Shein, Temu, and Amazon will now have to pay VAT for their digital services that are consumed in the Philippines.
“The challenge now is on the law’s implementation. BIR must see to it that the process will be easy and that there is no confusion on the part of the affected taxpayers in order to ensure full compliance,” Escudero said.
Authored and sponsored by Committee on Ways and Means Chairman Sen. Sherwin Gatchalian, SBN 2528 is a consolidation of SBN 250 filed by Sen. Pia Cayetano and HBN 4122 or the House version of the measure.