President Marcos has signed into law Republic Act (RA) No. 12023 or the Value Added Tax (VAT) on Digital Services Law which imposes a 12-percent VAT on digital service providers (DSPs) to level the playing field for local providers and generate additional revenue that will be used to build more classrooms, health centers, and farm-to-market roads in the next five years.

In his speech during the signing ceremony in Malacañan on Wednesday, Oct. 2, the President said the measure bridges the gap that the fast-changing digital landscape has created in the country's tax system.

The Law encompasses various services such as online search engines, online marketplaces, cloud services, online media and advertising, online platforms, and digital goods.

"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. This includes digital media, digital music, digital video on demand, and digital advertising," Marcos said.

Despite this, the President assured the public that the government has taken a "deliberate and measured approach" to ensure that this tax will not crush innovation or hinder growth.

He particularly mentioned that the VAT does not cover education-related digital services.

"We have been precise about where this tax applies, sparing educational and public interest services from its coverages," he said.

"Online courses, webinars, and other digital educational offerings are not subject to VAT in order to keep education affordable and accessible to all Filipinos," he added.

Benefits

Marcos said the new law ensures tax compliance and supports nation-building as the government expects to collect P105 billion from this measure in the next five years.

"This is enough to build 42,000 classrooms, more than 6,000 rural health units, [and] 7,000 kilometers of farm-to-market roads," he said.

In addition, the President said five percent of the revenues generated by RA 12023 will be allocated to the creative industries.

"This means our artists, filmmakers, musicians—the very people who fill our platforms with stories and with content—will directly benefit," he said.

"It ensures that our creative talents are not just surviving in a competitive digital market but will be allowed to prosper," he added.

Leveling the playing field

According to President Marcos, the new law, a priority legislation of the administration, levels the playing field for local providers, saying both local businesses and international digital platforms now compete on equal terms.

"We will no longer 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 to its growth," he said.

"Whether you are a small tech startup 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," he added.

With this, he asked the companies and entrepreneurs covered by the measure to support the government's endeavor.

"Fairness, inclusivity, and progress—these are the goals of this law," Marcos said.

"It is the beginning of a more equitable journey forward," he added.

According to Malacañang, RA 12023 aims to address revenue losses due to ambiguities in existing legislation regarding the taxation of e-commerce transactions.

It specifically targets foreign companies that are not based in the country and continue to provide services to Filipino consumers.