Senate President Francis “Chiz” Escudero expressed confidence that the bill imposing a 12-percent value-added tax (VAT) on digital transactions would shore up government coffers by at least P80 billion in revenues.

Escudero said that this would level the playing field for local and foreign digital service providers (DSPs) and streamline tax administration.

The VAT on Digital Transactions, a priority measure of the administration set to be signed by President Marcos on Sept. 30, is envisioned to capture revenues lost due to the vagueness of existing laws pertaining to taxation of e-commerce transactions, particularly foreign companies which are not based in the Philippines but provide services to local consumers.

“Lahat ng negosyo, malaki man o maliit, ay nagbabayad ng buwis. Hindi naman yata makatarungan na ang mga higanteng negosyante na hindi naka-base sa Pilipinas pero kumikita ng malaki sa pagbenta ng kanilang mga serbisyo sa mga Pilipino ay hindi sakop ng parehas na buwis. Pinapantay lang nitong bagong batas ang obligasyon sa pagbayad ng buwis sa lahat ng kumikita dito sa bansa (Every business, big or small, pays taxes. It doesn't seem fair that huge entrepreneurs not based in the Philippines but earning big from selling their services to Filipinos are not covered by the same tax. This new law simply levels the playing field by ensuring that everyone earning income in the country is subject to the same tax obligation),” Escudero said.

The Senate President noted that other nations, including the neighboring countries of the Philippines, have been imposing the same tax on digital services and transactions now that consumption of the same has become almost universal.

Citing projections by the Department of Finance (DOF), Escudero said the imposition of VAT on these digital transactions could generate anywhere between P80 billion and P145 billion for the period of 2025 to 2028, depending on the compliance of the subject taxpayers.

The new measure amends certain provisions of the National Internal Revenue Code (NIRC) of 1997 to make the collection of taxes more equitable and attuned to the changes in the economic landscape brought about by rapid advances in the use of technology.

Under the enrolled bill--a consolidation of House Bill (HB) No. 4122 and Senate Bill (SB) No. 2528 that was transmitted to the President for review and signature in late August--digital services are now explicitly part of the coverage of Philippine tax law and even non-resident DSPs who have no physical presence in the country but render services within the Philippines and whose services are consumed domestically will be covered by the law.

“It cannot be denied that the use and consumption of digital products and services within the Philippines has grown exponentially over the past decade and such economic activity from the use of new technology has become more prevalent. The amendments to the NIRC are merely an updating of the law to make it more attuned to present times,” Escudero said.

Section 108-A of the NIRC now mandates the imposition of the VAT on digital services consumed in the Philippines, whether these are provided by a resident or non-resident DSP.

Digital service is defined as any service supplied over the Internet or other electronic network with the use of information technology and where the supply of the service is essentially automated.

These include online search engines, online marketplace or e-marketplace, cloud service, online media and advertising, online platform, or digital goods.

This means popular streaming services such as Netflix and Disney+, and online shopping sites such as Shein, Temu and Amazon will now have to pay the VAT for their digital services that are consumed in the Philippines.

“The challenge now is on the law’s implementation. BIR must see to it that the process will be easy and that there is no confusion on the part of the affected taxpayers in order to ensure full compliance,” Escudero said.

Authored and sponsored by Committee on Ways and Means Chairman Senator Sherwin Gatchalian, SB No.2528 is a consolidation of SB No.250 filed by Senator Pia Cayetano and HB No.4122 or the House version of the measure.

Gatchalian expressed optimism that the Philippines will generate more tourist arrivals ahead of the seasonal peak during Christmas and New Year festivities, as the enactment of Value-Added Tax (VAT) refund for tourism draws nearer.

“I am hopeful that the measure will be enacted into law in time for the year-end holidays, when many tourists come to the country to experience our Christmas and New Year festivities,” he said.

“Tiwala tayo at umaasa na ang panukalang ito, kapag naisabatas, ay lalong magpapalakas sa turismo ng bansa na siya namang makakatulong para magkaroon ng  trabaho ang marami sa ating mga kababayan at magpapalakas pa ng ating ekonomiya (We believe and are hopeful that this proposed measure, once enacted, will further boost the country's tourism, which in turn will create job opportunities for many of our fellow citizens and strengthen our economy)," Gatchalian said.