Marcos signs into law VAT on foreign digital services

President Ferdinand “Bongbong” Marcos Jr. on Wednesday signed into law the measure seeking to impose a 12% value-added tax (VAT) on digital services provided by foreign companies. 

The ceremonial signing of Republic Act 12023 took place at the Ceremonial Hall of Malacañang Palace. 

''We are not imposing new taxes, we are simply strengthening the authority and streamlining the process of the BIR to collect value-added tax on digital services,'' Marcos said in his speech during the signing.

''This includes digital media, digital music, digital video, video-on-demand, and digital advertising. Local businesses and international digital platforms now compete on equal terms. We no longer will be playing by different sets of rules,'' he added.

The VAT on digital services is seen to level the playing field between traditional businesses — especially those that cannot shift to a digital platform and whose nature cannot be shifted to a digital platform  — and digital businesses. 

The traditional businesses include restaurants and retail stores while digital businesses include streaming platforms and online marketplace.

The newly-signed law aims to strengthen and streamline the Bureau of Internal Revenue's authority to collect VAT on digital services by providing measures on how digital service platforms can comply with VAT requirements imposed by the Tax Code.

In June, lawmakers approved the harmonized version of House Bill 4122 and Senate Bill 2528 during the bicameral conference.

The reconciled version of the bill seeks to slap a 12% VAT on digital transactions by non-resident digital service providers.

Finance Secretary Ralph Recto earlier said the estimated revenue to be collected by the government from the VAT on digital services is P20 billion every year.

Assuming that the digital service providers file a quarterly return and payment of VAT, an estimated P7.25 billion will be collected in 2025, and this will reflect the actual VAT collection for the last two quarters. 

Marcos said the law is more than ensuring tax compliance as it is also in support of nation-building.

He said that in the next five years, the government estimates to collect P105 billion from this measure. 

''This is enough to build 42,000 classrooms, more than 6,000 rural health units, 7,000 kilometers of farm-to-market roads,'' he said. 

Recto said the new law aims to correct the ''current system that creates an unfair advantage to foreign digital service providers and weakens the country’s tax base.''

"By doing this, we foster fairness, competition, and inclusion in our tax system and marketplace. Whether you are a local entrepreneur or a global giant, everyone will play by the same rules," he said.

The Department of Finance is directed to issue the implementing rules and regulations of the law no later than 90 days from its effectivity. 

Senator Sherwin Gatchalian, who sponsored the bill in the Senate, said the failure in the past to impose and collect tax on non-resident DSPs ''contradicts the fundamental principle of equitable taxation,'' adding that this generates an imbalance between domestic and foreign service providers.

Gatchalian and Senate President Francis ''Chiz'' Escudero were the authors of the bill in the Senate, while Albay Representative Joey Salceda is the proponent in the House of Representatives.

The public may expect minimal price increase in their monthly subscriptions following the signing of the law, according to the Bureau of Internal Revenue. —KBK/VDV, GMA Integrated News