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President Ferdinand Marcos Jr. signed Republic Act No. 12023 or the Value-Added Tax on Digital Services Law on October 2
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The new legislation requires payment of 12% VAT on digital goods and services
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It covers digital platforms such as Netflix, Spotify, Amazon, Shopee and Lazada, among other digital service providers
President Ferdinand Marcos Jr. signed Republic Act No. 12023 or the Value-Added Tax on Digital Services Law on October 2, imposing a 12% VAT on all digital services provided by offshore firms without a physical presence in the Philippines.
RA 12023 describes 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.”
Digital services subject to VAT now include digital media, music, video games and ads; video-on-demand, social networks; search engine services; cloud services, mobile applications; and electronic marketplaces.
The new measure covers digital platforms such as Netflix, Spotify, Amazon and Google and other online marketplaces such as Lazada, Shopee, Shein and Temu.
Non-resident digital service providers now have to register with the BIR if their gross sales or receipts for the past year exceeded P3 million. The BIR commissioner may suspend business operations of non-compliant taxpayers, including the blocking of digital services of non-compliant service providers.
“With this law, we say that if your presence in the Philippine market is as real as your profits, then your tax responsibilities should also be equally tangible,” Marcos said in a speech during the ceremonial signing of the law at Malacañan Palace.
“If you are reaping the rewards of a fruitful digital economy here, it is only right that you contribute also to its growth. After all, whether you are a small tech start-up or a global tech giant based halfway around the world, if you are making money here in the Philippines, you are part of our community. And with that comes a shared responsibility,” he said.
Marcos pointed out the government is not imposing new taxes but “simply strengthening the authority and streamlining the process of the BIR (Bureau of Internal Revenue) to collect value-added tax on digital services,” noting the “government has taken a deliberate and measured approach to ensure that this tax will not crush innovation or hinder growth.”
He added, “Local business and international digital platforms now compete on equal terms. We no longer will be playing by different sets of rules. If you are reaping the rewards of a fruitful digital economy here, it is only right that you contribute also to its growth.”
Exempted from the new law are digital educational services, including online courses and webinars offered by private institutions, and the sale of online subscription-based services to educational institutions recognized by government agencies. Among these institutions are the Department of Education, the Commission on Higher Education and state universities and colleges.
Services from bank, non-bank financial intermediaries performing quasi-banking functions, and other non-bank financial intermediaries, including those rendered through different digital platforms, are also exempt.
RA 12023 will be implemented by the Department of Information and Communications Technology (DICT) through the National Telecommunications Commission (NTC).
In the first five years of its implementation, the law is expected to generate P105 billion in additional revenues for the government, Marcos said. Of revenues generated by the new measure, 5% will be allocated to the creative industry to ensure “creative talents are not just surviving in a competitive digital market, but will be allowed to prosper.”
Depending on compliance, the Department of Finance noted the law is expected to generate between P80 billion and P145 billion from 2025 to 2028,
The Department of Finance will issue implementing rules and regulations no later than 90 days from the law’s effectivity. A transition period of 120 days will take place once the IRR takes effect in order to allow BIR to establish implementation systems.
