Ben Madilynn
PRESIDENT Ferdinand Marcos Jr. has signed a law imposing a 12 percent value-added tax (VAT) on foreign digital service providers (DSPs), marking a significant change in how digital services are taxed in the Philippines. This new measure, officially known as Republic Act 12023 or the VAT on Digital Services Law, was signed during a ceremonial event on October 2, 2024.
The law affects a wide range of digital services, including digital media, music, video-on-demand, and digital advertising, ensuring that foreign companies offering these services contribute taxes just like their local counterparts.
Why this law was passed?
The Philippine government recognized a gap in its tax system caused by the rapid rise of the digital economy. Many foreign companies, like Netflix, Disney+, and HBO, generate significant profits in the country without being subject to the same taxes as local businesses. By imposing VAT on these foreign digital service providers, the law levels the playing field, making sure local and international companies follow the same tax rules.
Marcos emphasized that if foreign digital platforms are earning money from the Philippine market, they should also contribute to its growth.
What’s covered under the law?
The VAT applies to various digital services provided by foreign companies, including:
However, the law exempts educational and public interest services like online courses and webinars. This was done to ensure that education remains affordable and accessible to Filipinos, particularly in a world where digital learning is becoming more common.
Economic impact
The Philippine government expects to collect around P105 billion in taxes over the next five years from this new law.
According to Marcos, this revenue will significantly benefit the country, with funds going toward building infrastructure such as:
Also, five percent of the revenue from this tax will be allocated to the creative industries, supporting Filipino artists, musicians, and filmmakers who contribute content to digital platforms.
Marcos stressed that this law promotes fairness, inclusivity, and progress.
Addressing an uneven playing field
Before this law, local digital service providers like iWantTFC and Vivamax were subject to VAT, while foreign companies offering similar services were not. This uneven taxation put local businesses at a disadvantage.
Senator Win Gatchalian, who chairs the Senate Committee on Ways and Means, noted that this situation went against the principle of equitable taxation.
The law corrects this imbalance by ensuring that foreign DSPs are taxed just like local platforms, creating a fairer market where all businesses operate under the same tax policies.
No hindrance to innovation
Marcos assured that the government has taken a measured approach to implementing the law, ensuring that it will not stifle innovation or hinder growth in the digital sector.
The goal is to support a thriving digital economy while making sure that everyone, from start-ups to global tech giants, contributes their fair share of taxes. (SunStar Philippines)
