VAT on digital services law levels playing field for MSMEs, DTI says

THE Department of Trade and Industry (DTI) said newly signed legislation that will impose value-added tax (VAT) on foreign digital service providers will help level the playing field for micro, small and medium enterprises (MSMEs).

In a statement on Thursday, Acting Trade Secretary Cristina Aldeguer-Roque said the VAT on Digital Services Law will also empower MSMEs in the digital age while protecting consumers.

“This landmark legislation is a significant step towards creating a more equitable and inclusive digital economy in the Philippines,” Ms. Roque said.

“By ensuring that all digital service providers, regardless of origin, contribute their fair share to the country’s tax system, we are promoting healthy competition and supporting the growth of our MSMEs,” she added.

President Ferdinand R. Marcos, Jr. on Wednesday signed into law Republic Act No. 12023, which amends the National Revenue Code of 1997 and imposes a 12% VAT on foreign digital service providers.

Apart from the 12% VAT, the law also imposes a 5% VAT on registered foreign entities providing services to the government.

Under the law, nonresident digital service providers are required to register for VAT if their gross sales or receipts for the past year exceed P3 million.

The law covers online search engines, online marketplaces, cloud services, online media and advertising, online platforms, and digital content providers.

“This removes the unfair advantage previously enjoyed by foreign digital service providers,” Ms. Roque said.

Separately, Philippine Retailers Association President Roberto S. Claudio said the industry welcomes the law.

“On behalf of the business community and retailers in the Philippines, this now levels the business environment between local retailers and online foreign merchants,” he said via Viber.

“This will also substantially boost tax revenue for the government’s social and educational programs,” he added. — Justine Irish D. Tabile