Senate OKs VAT on digital services

The Philippine Senate on Monday approved on third and final reading a bill that seeks to impose a 12% value-added tax (VAT) on digital services provided by companies with no physical presence in the Philippines.

All 23 senators voted in favor of Senate Bill No. 2528, which requires nonresident digital service providers to collect and remit VAT on all digital transactions of customers in the Philippines.

Under the measure, nonresident digital service providers and electronic marketplaces must register with the Bureau of Internal Revenue (BIR) for the remittance of VAT on their services.

Digital services refer to those provided over the internet or other electronic networks using information technology. These include online search engines, online marketplaces, cloud services, online media and advertising, online platforms and digital goods.

If signed into law, the measure may cover e-commerce firms such as Amazon, Shein, Rakuten, Taobao, AliExpress and Temu, which do not have physical presence in the Philippines.

The BIR commissioner can order the blocking or suspension of the services of digital providers if they fail to withhold and remit the 12% VAT.   

The bill exempts online courses, seminars and training programs offered by private educational institutions accredited by the Department of Education and Commission on Higher Education from remitting the tax.

The services of banks and nonbank financial intermediaries including those delivering services through digital platforms are also exempt from remitting the VAT, according to a copy of the bill sponsored by Senator Sherwin T. Gatchalian.

The measure also has a reverse charge mechanism that will require a VAT-registered taxpayer who receives the digital services from these nonresident foreign businesses and marketplaces to withhold and remit the VAT to the BIR.

“This (measure) would level the playing field with local market players in terms of taxation and on top of principles in terms of taxation, this would also increase the government’s source of recurring revenues,” Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

The Department of Finance expects the bill to bring in P83.8 billion in revenue from 2024 to 2028.

The House of Representatives approved a similar measure in November 2022.

“This will increase tax revenues but may be detrimental to businesses as this is an additional burden that they may pass to consumers, making products more expensive,” John Paolo R. Rivera, president and chief economist at Oikonomia Advisory & Research, Inc., said in a Viber message.

Meanwhile, the Senate also approved on third and final reading a bill seeking to set tougher penalties on those who use financial accounts to commit crimes.

All 23 senators voted in favor of Senate Bill No. 2560, or the proposed Anti-Financial Account Scamming Act (AFASA), which sets jail time of at least six years and a fine of as much as PHP 500,000 against those behind money mule schemes.

People found guilty of fraud may face as long as 12 years in jail and a fine of at least PHP 1 million, according to a copy of the measure sponsored by Senator Mark A. Villar.

The bill also punishes those committing economic sabotage — deliberately disrupting a country’s economy, with life imprisonment and a fine of at least PHP 1 million but not more than P5 million.

Both measures approved on Monday are part of the Legislative-Executive Development Advisory Council’s priority bills. — John Victor D. Ordoñez