Press Release - VAT on digital services to level playing field amid growing preference for digital services --Gatchalian

Senator Win Gatchalian said the enactment of the value-added tax (VAT) imposition of digital services levels the playing field amid growing Filipino preference for digital services.

"We believe in the importance of creating an environment where our digital services providers, whether they are nonresident or local, operate under fair and square tax policies," Gatchalian said, following the recent enactment of Republic Act 112023, which provides for the imposition of 12% VAT on digital services.

He stressed that the enactment of the measure does not mean a new tax imposition. "Hindi tayo nagpapataw ng bagong buwis. Kokolektahin lang natin ang buwis na dapat naman talaga nating nakokolekta mula sa mga dayuhang digital service providers," he added.

The chair of the Senate Committee on Ways and Means, Gatchalian explained that in Section 108 of the Tax Code, the sale of services performed in the country is subject to a VAT. Thus, all digital service providers should be subject to VAT whether they are nonresident or resident.

However, due to the ambiguity of the law, the taxability of non-resident digital service providers has become unclear. "Dahil sa pagsasabatas ng panukalang ito, may mandato ang gobyerno para singilin ang mga dayuhang digital service providers na magbayad ng 12% VAT," he said.

The senator emphasized that failure in the past to impose and collect tax on nonresident digital service providers contradicts the fundamental principle of equitable taxation, generating an imbalance between domestic and foreign service providers and putting local businesses at a disadvantage.

He cited streaming platforms as an example. While local platforms like iWantTFC and Vivamax are subject to VAT, subscriptions to the services of their foreign counterparts such as Netflix and HBO Go are not, creating an uneven playing field between local and nonresident digital service providers.

"This situation hampers the government's ability to adequately collect taxes from the growing digital economy," he said. Based on data from the Department of Finance, implementing VAT collection on digital service providers has the potential to generate an additional P83.8 billion in revenues