In a move aimed at promoting equitable taxation and supporting the local digital economy, the Philippines has enacted Republic Act No. 12023, imposing a 12% value-added tax (VAT) on digital service providers (DSPs). The law, signed by President Ferdinand Marcos Jr. today, is expected to generate significant revenue while ensuring fair competition between local and international platforms.
Senator Win Gatchalian, Chair of the Senate Committee on Ways and Means, emphasized that this tax measure is not a new imposition but a collection of taxes that should have been levied on non-resident DSPs. “We believe in the importance of creating an environment where our digital services providers, whether they are nonresident or local, operate under fair and square tax policies. We are not imposing a new tax. We are simply collecting the tax that we should have already been collecting from foreign digital service providers. (Hindi tayo nagpapataw ng bagong buwis. Kokolektahin lang natin ang buwis na dapat naman talaga nating nakokolekta mula sa mga dayuhang digital service providers),” Gatchalian explained.
The senator also pointed out that under the current tax code, all service providers operating in the country, whether resident or non-resident, should be subject to VAT. However, due to legal ambiguities, foreign DSPs like Netflix and HBO Go had previously avoided taxation, putting local platforms such as iWantTFC and Vivamax at a disadvantage.
With the new law, the government is expected to collect up to PHP83.8 billion in additional revenue from digital services between 2024 and 2028. Gatchalian stressed that addressing this imbalance helps local businesses compete fairly with international counterparts.
During the signing ceremony, the Philippine President underscored that the VAT on digital services addresses gaps in the country’s tax system created by the rapidly evolving digital landscape. He stated that the law encompasses services like online marketplaces, digital advertising, streaming platforms, and cloud services. Importantly, the VAT does not apply to education-related digital services, such as online courses and webinars, to keep these offerings accessible.
The Chief Executive also highlighted that the new measure supports nation-building, with the revenue generated set to fund the construction of 42,000 classrooms, over 6,000 rural health units, and 7,000 kilometers of farm-to-market roads over the next five years. In addition, 5% of the revenue will be allocated to the creative industries, benefiting artists, filmmakers, and musicians who contribute content to these platforms.
BIR Commissioner Romeo Lumagui Jr. assured the public that the law aims to create a level playing field, ensuring that both local and foreign DSPs are treated equally. He added that the income generated from these taxes would be reinvested into government services, infrastructure, and social welfare programs.
While concerns have been raised about potential price increases for digital services, Lumagui downplayed the likelihood of significant hikes, noting that any increases would likely be minimal. He expressed confidence that popular foreign DSPs will comply with the new law, as the Department of Finance (DOF) has coordinated with them, and they have committed to adhere to the tax regulations.