A 12% Value Added Tax (VAT) will be soon imposed on foreign digital services, including Netflix, Spotify, and Amazon, among others as President Ferdinand Marcos Jr. signed Republic Act (RA) 12023, which aims to tax nonresident digital service providers.
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During the ceremonial signing of the law on Wednesday, October 2, Marcos Jr. emphasized that this measure will not “hinder growth.”
“We are not imposing new taxes, we are simply strengthening the authority and streamlining the process of the BIR to collect value-added tax on digital services,” Marcos said in his speech.
He added, “Be assured that the government has taken a deliberate and measured approach to ensure that this tax will not crush innovation or hinder growth.”
The VAT will be included in digital media, digital music, digital video, video-on-demand, and digital advertising.
Moreover, the added VAT is said “to level the playing field” between traditional and digital businesses, ensuring that local businesses and international digital platforms will now compete on equal terms.
The President clarified that the new VAT could generate Php 105 billion over the next five years.
By 2025, the Department of Finance is expected to collect Php 7.25 billion. The collected revenues are said to be sufficient to build over 40,000 classrooms, more than 6,000 rural health units, and 7,000 kilometers of farm-to-market roads.
Furthermore, five percent of the generated revenues will be allocated to the local creative industry.
“This means our artists, filmmakers, musicians, the very people who fill our platform with stories and with content, will directly benefit. It ensures that our creative talents are not just surviving in a competitive digital market, but will be allowed to prosper,” the President said.
The implementing rules and regulations (IRR) will be issued 90 days after the law takes full effect. Once the IRR is in place, there will be a 120-day transition period for the BIR to establish necessary measures for implementation.
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