The Department of Finance (DOF) expects to generate P102.12 billion over the next five years from a new law that imposes a 12-percent value-added tax (VAT) on both local and foreign digital service providers (DSPs).
According to the DOF, the estimated revenues to be collected from 2025 to 2029 will be used to fund projects such as building more schools, roads, hospitals, and supporting vital socio-economic programs.
For 2025, the DOF projects to collect around P7.25 billion in revenue with a 50-percent compliance rate.
Signed on Oct. 2, RA No. 12023, or the Value-Added Tax on Digital Services, enhances the Bureau of Internal Revenue’s (BIR) authority to enforce VAT compliance for foreign digital service providers earning over P3 million annually, according to the DOF.
Locally, BIR Commissioner Romeo D. Lumagui Jr. reported that while exact VAT collection data will not be available until November, initial registration indicates a positive compliance trend with thousands of resident digital service providers registering.
For the next five years, the DOF said that five percent of the collected revenues will be allocated to developing local creative industries and supporting Filipino creators and entrepreneurs.
In a statement, the DOF stated that the 12-percent VAT on all digital services consumed in the Philippines ensures fair tax treatment for both local and foreign DSPs, noting that only local DSPs are currently subject to paying the tax.
Finance Secretary Ralph G. Recto also clarified that the new law only corrects an unfair system that favored foreign providers and weakened the country's tax base.
“Whether you are a local entrepreneur or a global giant, everyone will play by the same rules,” Recto said.
“With this law, we say that if your presence in the Philippine market is as real as your profits, then your tax responsibility should also be equally tangible.” President Marcos said during the signing.
Lumagui told reporters that no other penalties for non-compliance will be introduced, as existing measures are already in place to ensure adherence.
“The immediate solution for foreign entities without a physical presence here is to block them, which means they will lose the revenue they generate in the Philippines. This alone should be sufficient to encourage compliance, as they would otherwise lose significant revenue,” he said.
Finance Director Nina Asuncion seconded that multinational companies recognize the reputational risk and potential revenue loss from being blocked, making this threat a strong deterrent against tax evasion.
To ensure tax compliance, the DOF orders foreign digital service providers to appoint a local representative, noting that non-compliant businesses will face temporary suspension.
When asked whether the government will impose a cap on price increases, Commissioner Lumagui said that while businesses can set their own prices, the 12-percent VAT will be calculated based on those fees, and market principles will naturally regulate pricing to prevent excessive increases that could drive away customers.
The law exempts educational services and subscription-based digital services for recognized educational institutions from value-added tax.
A 120-day transition period will follow the implementation of the law's regulations, allowing the BIR to set up systems before enforcing VAT on foreign DSPs, with implementing rules issued 90 days after the law takes effect.
Digital services include online search engines, marketplaces, cloud services, online media, online advertising, and digital goods.