- Oct 22, 2020
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A new law in the Philippines is set to impose tax responsibilities upon companies that offer digital services in the country.
On October 2, 2024, President Ferdinand Marcos Jr. ratified the "Value-Added Tax on Digital Services Law" that aims to balance the Philippine digital landscape. President Marcos Jr. noted, "We are not imposing new taxes, we are simply strengthening the authority and streamlining the process of the BIR (Bureau of Internal Revenue) to collect value-added tax on digital services."
The new law also seeks to provide the BIR with a more efficient procedure to collect VAT or value-added tax from digital services. As defined by the Presidential Communications Office, digital services include digital platforms that target the music, video games, video-on-demand, and even digital ads industry.
In this case, we can actually identify a number of digital services available in the Philippines that we use on a day-to-day basis. First in line are Netflix and Spotify. The government also included Amazon and Lazada in the companies to be affected by the new law. Meanwhile, digital educational services like online courses and webinars offered by and to private institutions are exempted.
Companies who have to abide by the law will now have to comply with their tax responsibilities in the Philippines. Failure to do so may now result in the suspension of their business operations in the country—basically, blocking the usage of the services.
President Marcos emphasized that the new law is supposed to promote more equal grounding when it comes to the country's digital economy, highlighting that digital services must contribute to its growth as well. "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," President Marcos said.
He furthered, "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."
In a report by ABS-CBN News, Senator Sherwin Gatchalian earlier noted that local digital platforms like VivaMax and iWantTFC have been subject to pay their tax responsibilities even before the new law, hence they were at a disadvantage. With the new law imposed on foreign digital platforms too, the digital economy space will have a "leveled playing field" for stakeholders. The implementing rules and regulations (IRR) for the new law shall be rendered to involved companies within 90 days.
What does the new law mean for digital services consumers?
For someone who's got lots of digital subscriptions, the newest bill signed into law in the Philippines appears concerning. Will it result in a subscription fee hike? Well, the Philippine government says, it's not something that they can control. After all, they're just collecting the 12% VAT from the companies operating in the country.
In a press briefing on October 2, 2024, BIR Commissioner Romeo Lumagui underscored that increases in subscription prices are not controlled by the tax bureau—it is subject to the companies' business decisions. He said that service providers that will be affected by the new law should have long incorporated taxes in their original pricing before the signing of the law.
"It's a business decision by the service providers. Nagbabayad naman dapat sila from the very beginning, so they should have incorporated 'yung VAT into their pricing sa simula pa lang. Puwede naman magkaroon ng price increase but I think it would be minimal. Hindi naman [dahil may] 12% automatic mag-iincrease sila," the Commissioner explained.
According to SPOT.ph, the government is looking at around P102 billion in revenue because of the new law. Five percent of it will be allotted to support the creative industry in the Philippines. Additionally, the rest of the revenue will be distributed to build public infrastructures such as classrooms and health centers.
On October 2, 2024, President Ferdinand Marcos Jr. ratified the "Value-Added Tax on Digital Services Law" that aims to balance the Philippine digital landscape. President Marcos Jr. noted, "We are not imposing new taxes, we are simply strengthening the authority and streamlining the process of the BIR (Bureau of Internal Revenue) to collect value-added tax on digital services."
The new law also seeks to provide the BIR with a more efficient procedure to collect VAT or value-added tax from digital services. As defined by the Presidential Communications Office, digital services include digital platforms that target the music, video games, video-on-demand, and even digital ads industry.
In this case, we can actually identify a number of digital services available in the Philippines that we use on a day-to-day basis. First in line are Netflix and Spotify. The government also included Amazon and Lazada in the companies to be affected by the new law. Meanwhile, digital educational services like online courses and webinars offered by and to private institutions are exempted.
Companies who have to abide by the law will now have to comply with their tax responsibilities in the Philippines. Failure to do so may now result in the suspension of their business operations in the country—basically, blocking the usage of the services.
President Marcos emphasized that the new law is supposed to promote more equal grounding when it comes to the country's digital economy, highlighting that digital services must contribute to its growth as well. "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," President Marcos said.
He furthered, "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."
In a report by ABS-CBN News, Senator Sherwin Gatchalian earlier noted that local digital platforms like VivaMax and iWantTFC have been subject to pay their tax responsibilities even before the new law, hence they were at a disadvantage. With the new law imposed on foreign digital platforms too, the digital economy space will have a "leveled playing field" for stakeholders. The implementing rules and regulations (IRR) for the new law shall be rendered to involved companies within 90 days.
What does the new law mean for digital services consumers?
For someone who's got lots of digital subscriptions, the newest bill signed into law in the Philippines appears concerning. Will it result in a subscription fee hike? Well, the Philippine government says, it's not something that they can control. After all, they're just collecting the 12% VAT from the companies operating in the country.
In a press briefing on October 2, 2024, BIR Commissioner Romeo Lumagui underscored that increases in subscription prices are not controlled by the tax bureau—it is subject to the companies' business decisions. He said that service providers that will be affected by the new law should have long incorporated taxes in their original pricing before the signing of the law.
"It's a business decision by the service providers. Nagbabayad naman dapat sila from the very beginning, so they should have incorporated 'yung VAT into their pricing sa simula pa lang. Puwede naman magkaroon ng price increase but I think it would be minimal. Hindi naman [dahil may] 12% automatic mag-iincrease sila," the Commissioner explained.
According to SPOT.ph, the government is looking at around P102 billion in revenue because of the new law. Five percent of it will be allotted to support the creative industry in the Philippines. Additionally, the rest of the revenue will be distributed to build public infrastructures such as classrooms and health centers.
