Marcos signs law imposing 12% VAT on foreign digital services
MANILA, Philippines — President Ferdinand Marcos Jr. has signed into law a measure that taxes foreign digital services, which includes overseas-based e-commerce firms and popular streaming platforms such as Netflix, HBO and Disney.
Republic Act 112023 imposes a 12% value-added tax (VAT) on digital services provided by resident and non-resident digital service providers, regardless of whether they have a physical presence in the Philippines.
The bicameral conference committee of members of the Senate and the House of Representatives passed the reconciled version of the measure in June. It was also tagged as a priority legislation of the Marcos administration.
What the law changes. The law adds a provision in the Tax Code which states that digital services delivered by foreign digital service providers are considered performed or rendered in the Philippines if the digital services are consumed in the Philippines.
Proponents of the House and Senate versions said the measure aims to level the playing field between local and foreign digital service providers.
Rep. Joey Salceda (Albay, 2nd District), chair of the House ways and means panel, said in June that the measure addresses the unfair advantage that foreign companies have over local firms due to their "unfettered and untaxed access" to the Philippine market.
Salceda said this was particularly evident during the COVID-19 pandemic, when he first filed the House version of the proposed law.
"While resident content producers were subject to VAT and income taxes, foreign service providers were not... This unfairness to the domestic sector for at least four years is why the House contingent believes that we owe the resident creatives sector some measure of compensation and support," he added.
The Department of Finance expects the imposition of the VAT to generate around P83.8 billion from 2024 to 2028. Lawmakers plan to allocate 5% of this amount for the development of local creative industries.
What will be taxed? RA 112023 covers all foreign digital services, which refer to those delivered via the internet or electronic networks using information technology, where the process is largely automated.
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