PCCI: 12% VAT on foreign digital services to create competitive environment

The Philippine Chamber of Commerce and Industry (PCCI), the country’s largest business sector group, on Friday welcomed the signing into law of a measure imposing value-added tax on foreign digital service providers.

“By imposing VAT on both local and foreign digital services, the government is creating a more competitive environment for local digital service providers and greater incentives for them to innovate and improve their offerings,” PCCI president Enunina Mangio said in a statement.

“The formalized taxation system could also encourage local service providers to formalize their businesses, thereby enhancing their credibility and building consumer trust in their services,” Mangio added.

On Wednesday, President Ferdinand Marcos Jr. signed into law the Republic Act No. 12023 which slapped a 12% VAT on non-resident digital services.

With the new law, the government is expecting to collect P102.12 billion from 2025 to 2029.

The PCCI chief said that charging 12% VAT on non-resident digital service providers is seen to level the playing field between local and foreign digital service providers, thereby ensuring fair competition and potentially boosting domestic businesses. 

Mangio said the revenue generated from VAT can be reinvested in ICT infrastructure, technology and digital initiatives that could benefit local service providers and creative industries.

“The new law aligns the Philippines with other countries that have adopted similar measures to capture revenue from global tech giants and digital platforms including online marketplaces, streaming platforms, cloud services, digital advertising, and the sale of digital goods,” she said.

Other countries such as Singapore, Indonesia, and Malaysia introduced regulations to impose digital tax in 2020, while Thailand introduced a VAT on foreign digital service providers in 2021.

The law defines digital service as 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.

This includes online search engines, online marketplace, e-marketplace, cloud service, online media and advertising, online platform, or digital goods. —AOL, GMA Integrated News