The Senate is soon to debate on the necessity of subjecting foreign digital service providers (DSP) under the coverage of value-added tax (VAT).

This, after Sen. Sherwin Gatchalian, chairman of the Senate Committee on Ways and Means sponsored the committee report for Senate Bill No. 2528 during Tuesday’s plenary session.

According to Gatchalian, digital service providers—whether resident or non-resident are subjected to VAT under Section 108 of the Tax Code since they are sellers of services in the Philippines.

“However, due to the ambiguity in the law, the taxability of non-resident digital service providers becomes unclear,” the senator said.

As a result, he said these non-resident DSPs, such as Netflix and HBO Go are not subjected to the 12 percent VAT.

“In the advent of digitalization, determining where digital services are performed becomes challenging — leading to uncertainty if these services should be taxed in the Philippines,” Gatchalian said.

“As digital workflows and service chains become more complex, the multi-layered processes occurring across various jurisdictions pose challenges in determining the precise physical location where a service is performed,” he added.

Gatchalian warned there could be serious repercussions should this ambiguity in the Tax Code is not addressed and failure to impose and collect tax on foreign DSPs contradicts the fundamental principles of equitable taxation.

“It generates an imbalance between domestic and foreign service providers, placing local businesses at a disadvantage,” he said.

Another principle that the bill aims to touch on is the streamlining of various processes, the lawmaker said.

Gatchalian said the bill also mandates VAT-registered non-resident digital service providers to issue digital sales or commercial invoices for the sale of all digital services consumed in the Philippines with simplified requirements.