MANILA, Philippines – President Ferdinand Marcos Jr. signed into law a measure imposing the 12% value-added tax (VAT) on nonresident digital service providers, such as Netflix, Amazon, and Shein.
“With this law, we say that ‘if your presence in the Philippine market is as real as your profits, then your tax responsibilities should also be equally tangible,’” Marcos said during the ceremonial signing of the law on Wednesday, October 2.
Marcos also clarified that this was not an imposition of a new tax, but just a way to streamline the BIR’s ability to collect VAT from digital services.
“Be assured that the government has taken a deliberate and measured approach to ensure that this tax will not crush innovation or hinder growth,” he added.
Republic Act 12023 extends VAT to all digital services consumed in the Philippines, even if provided by companies without a physical presence in the country. This includes purchases from popular electronic marketplaces like Amazon, Shein, and Temu, and subscriptions to streaming services like Netflix and Disney+, which were previously not subject to VAT.
Digital service providers refer to “any service that is 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, e-marketplaces, cloud services, online media and advertising, online platforms, and digital goods.
The VAT imposed will be equal to 12% of gross receipts derived from the sale or exchange of services, including digital services, and the use or lease of properties.
Consequently, nonresident digital service providers are now required to register with BIR. The nonresident digital service provider will then be liable for the assessment, collection, and remittance of VAT.
However, the law exempts from VAT the following:
- Online courses, online seminars, and online trainings rendered by private educational institutions accredited by the Department of Education (DepEd), the Commission on Higher education (CHED), and the Technical Education and Skills Development Authority (TESDA)
- Sale of online subscription-based services to DepEd, CHED, TESDA, and educational institutions recognized by the aforementioned agencies
- Services of bank, non-bank financial intermediaries performing quasi-banking functions, and other non-bank financial intermediaries, including those rendered through the different digital platforms
The new VAT law could generate P105 billion over the next five years, according to the President. Of the revenues generated by the law, 5% will be allocated to the creative industry.
“This means our artists, filmmakers, musicians, the very people who fill our platform with stories and with content, will directly benefit. It ensures that our creative talents are not just surviving in a competitive digital market, but will be allowed to prosper,” Marcos said.
The Senate approved the bill, a priority measure of the administration, earlier on May 20. Senate President Francis Escudero said that it would level the playing field for local and digital service providers. – Rappler.com
