VAT on foreign digital services not a new tax, says BIR

The imposition of value-added tax (VAT) on digital services provided by foreign entities is not a new tax, but was meant to level the playing field among local traditional enterprises and digital service firms, the Bureau of Internal Revenue (BIR) said Thursday.

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.

In a statement, BIR Commissioner Romeo Lumagui Jr. expressed support for the enactment into law of RA 12023.

“This is not a new tax. [The] RA No. 12023 only ensures that the VAT being paid by local digital businesses, will also be paid by foreign digital businesses,” Lumagui said.

The taxman chief said the new law promotes fair competition because it equalizes the VAT to be paid by both local and foreign companies, as long as they are doing business in the Philippines.

"The BIR supports RA No. 12023. This will promote fair competition amongst businesses that are profiting from consumers here in the Philippines. A level playing field produces better products and services,” Lumagui said.

Under the law, foreign digital service providers whose gross sales or receipts for the past year have exceeded P3 million are required to register for VAT.

Non-resident digital service providers are also required to designate a representative office or agent —a resident corporation registered under Philippine law to assist in compliance with the provisions of the Tax Code. Non-compliant businesses will be temporarily suspended.

The BIR said digital services delivered by non-resident digital service providers are considered rendered in the Philippines if the digital services are consumed in the Philippines.

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. — RSJ, GMA Integrated News