President Ferdinand Marcos Jr. recently signed a law that imposes a 12% value-added tax (VAT) on nonresident digital service providers such as Netflix, Amazon, and Shein.
“This law is clear: if you earn real money in the Philippine market, your tax liability must also be real,” Marcos said when signing the law on October 2.
He clarified that this is not a new tax, but a way to improve the ability of the Bureau of Internal Revenue (BIR) to collect VAT from digital services.
"The government assured that this tax will not stop innovation or growth," added Marcos.
Republic Act 12023 expanded the scope of VAT to include all digital services used in the Philippines, even if they do not have a physical presence here. This includes purchases from platforms such as Amazon, Shein, Temu, and subscriptions to services such as Netflix and Disney+, which were previously exempt from tax.
What is referred to as “digital service providers” are businesses that offer services through the internet or other electronic networks. These include online search engines, e-marketplaces, cloud services, online advertising platforms, and digital goods.
12% VAT will be levied on gross revenue from digital services and other related transactions.
In addition, nonresident digital service providers must register with the BIR if their sales in the previous year exceeded P3 million. It is now the responsibility of these providers to collect and remit VAT, and they must appoint a local representative or agent in the Philippines. Companies that do not comply may be suspended.
However, there are some services that are exempt from VAT, including:
- Online courses, seminars, and training offered by private schools accredited by DepEd, CHED, or TESDA
- Online subscription services sold to DepEd, CHED, TESDA, or recognized educational institutions
- Services offered by banks and non-bank financial intermediaries, including services offered on digital platforms
The new law is expected to raise P105 billion over the next five years, with an estimated P7.25 billion to be collected by 2025 if a 50% compliance rate is reached. Of the total revenue, 5% will go to the creative industry.
"This means that our artists, filmmakers, and musicians will directly benefit, helping them succeed in the competition in the digital space," said Marcos.
The implementing rules and regulations (IRR) of the law will be drawn up within 90 days, following a 120-day transition period for the BIR to fix the necessary system.
This law, which is a priority of the Marcos administration, was passed by the Senate on May 20. According to Senate President Francis Escudero, it ensures fair competition between local and digital service providers.
