VAT on Digital Services: The Key Features of R.A. No. 12023
by: Atty. Raegan L. Capuno
Are you a binge-watcher of movies and videos on popular digital platforms like Netflix, Disney+, Prime Video, and HBO, or an online shopper using digital applications like Alibaba, Temu, Zalora, Amazon, or eBay? If so, Republic Act (R.A.) No. 12023, popularly known as the VAT on Digital Services which was signed into law on October 2, 2024, will significantly impact these daily routines and shopping activities, at least on the cost of availing these services, because the Philippines has taken a major step by extending the imposition of twelve percent (12%) value-added tax (VAT) to non-resident digital service providers (DSP).
The Philippine VAT system adopts the place of consumption as the situs of VAT, meaning, that when goods or services are consumed or destined to be consumed in the Philippines, VAT is imposed. Thus, all services, including digital services, consumed in the Philippines should be imposed of VAT. Hence, R.A. No. 12023 is technically not a new tax law because it merely emphasizes the rule on situs of VAT, specifically those rendered by non-resident DSP.
R.A. No. 12023 is also a welcome development because prior to this law, local DSPs were subjected to 12% VAT while non-resident DSPs operating remotely or outside the Philippines were not taxed with the same. This law will level the playing field between local and non-resident DSPs in terms of VAT imposition and collection.
While the vision of this law is laudable, it is unfortunate that like any other tax or imposition, the burden is borne by the final consumer. It is thus expected that subscription prices or fees to avail of these digital services will rise due to R.A. No. 12023.