President Ferdinand “Bongbong” Marcos Jr. has signed into law a measure taxing foreign digital services, including overseas-based e-commerce firms and popular streaming platforms like Netflix, HBO, and Disney+.
Republic Act 112023 imposes a 12-percent value-added tax (VAT) on digital services provided by both resident and non-resident digital service providers, even if they lack a physical presence in the Philippines.
The reconciled version of the bill was passed by the bicameral conference committee, consisting of members from both the Senate and House of Representatives, in June.
It was also identified as a priority legislation of the Marcos administration.
Key changes
The law amends the Tax Code to clarify that foreign digital services consumed in the Philippines are considered performed or rendered in the country, making them subject to the VAT.
Proponents of the bill in both chambers of Congress argue that the law aims to create a level playing field between local and foreign digital service providers.
Rep. Joey Salceda (Albay, 2nd District), who chairs the House ways and means panel, explained in June that foreign companies have had an "unfettered and untaxed access" to the Philippine market, which gave them an unfair advantage over local businesses.
Salceda noted that the inequity became even more evident during the COVID-19 pandemic when he first proposed the legislation.
"While local content producers were subject to VAT and income taxes, foreign service providers were not. This unfairness to the domestic sector for at least four years is why the House contingent believes that we owe the resident creatives sector some measure of compensation and support," he added.
The Department of Finance estimates that this new VAT will generate around P83.8 billion in revenue from 2024 to 2028. Lawmakers plan to allocate 5% of this amount to support the development of local creative industries.
Who will be taxed?
RA 112023 applies to all foreign digital services, which are those delivered through the internet or electronic networks using information technology, and where the process is largely automated.
Examples include online search engines, e-marketplaces, cloud services, online media, advertising, digital platforms, and digital goods.
This means that platforms like Netflix, Disney+, Shein, Temu, and Amazon will now be required to pay VAT on the digital services they offer to Philippine consumers, regardless of their overseas base.
In September, Senate President Chiz Escudero emphasized that the Bureau of Internal Revenue (BIR) must ensure the public is well-informed about the new tax imposition.
"All businesses, whether big or small, pay taxes. It doesn’t seem fair that giant companies not based in the Philippines, but earning significant profits by selling services to Filipinos, are not subject to the same taxes," Escudero said.
"The challenge now lies in implementing the law. The BIR must ensure that the process is straightforward and clear for affected taxpayers to guarantee full compliance," he added.
However, former Bayan Muna partylist representative Carlos Zarate criticized the VAT imposition on foreign digital goods, calling it "anti-consumer."
He warned that it would hurt middle-class consumers more than the large international companies, likely raising subscription and service fees.
Other Southeast Asian countries, including Singapore, Indonesia, and Malaysia, introduced similar digital tax regulations in 2020, while Thailand followed in 2021, according to ASEAN Briefing.
Photo Courtesy: PNA
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