Digital services VAT law drives competitiveness

The country’s largest congregation of businessmen, the Philippine Chamber of Commerce and Industry, has thrown its full support for the enactment of Republic Act 12023 VAT on Digital Services, as they see it as a catalyst for digital service providers to fully embrace digitization.

“Republic Act 12023, which extends the 12 percent value-added tax (VAT) to 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,” sPCCI president Consul Enunina Mangio said.

“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,” Mangio added.

Credibility, trust built

According to the PCCI chief, the taxation system may also encourage local service providers to formalize their businesses, “thereby enhancing their credibility and building consumer trust in their services.”

PCCI further cited the new law for modernizing the country’s tax system and improving the efficiency of tax collection in the growing digital economy. 

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.

Moreover, she said 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. 

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

Signed by President Ferdinand Marcos Jr. on Wednesday, Republic Act 12023 is expected to generate an additional P105 billion of revenue in the first five years of implementation as it strengthens the Bureau of Internal Revenue’s authority to collect VAT on digital transactions and clarifies how the DSPs (digital service providers) can comply with the VAT requirement imposed under the National Internal Revenue Code.