The Republic Act (RA) 12023, simplified as VAT foreign digital services law, adds tax on popular digital platforms people use today.
President Ferdinand R. Marcos Jr. signed a law that imposes value-added tax or VAT on foreign digital services. You’ve probably heard this but are you aware of what it does? If you subscribe to streaming platforms, brace yourself because subscription costs will rise very soon.
VAT Foreign Digital Services Law
It was on October 2, 2024, Wednesday, when President Marcos Jr. signed the Republic Act (RA) 12023. Foreign digital services are now imposed with a 12% VAT. Why impose such a staggering amount?
Besides getting tax from such services, it’s one way to empower fair competition between local and foreign digital services. All services now have the same amount of tax and that means their prices will become more competitive.
How much will the government collect? The estimated value is around PHP 105 billion in the next five years. That amount can build 42,000 classrooms, over 6,000 rural health units, and 7,000 km of farm-to-market roads. Around 5% of the revenues generated by the new law will be allocated to the local creative industry.
Are You Affected?
Provided that the tax collected is put to good use, every Filipino will reap the benefits. But not every Filipino will be burdened because the tax is limited to foreign services, such as:
- Digital services that exchange for a regular subscription fee.
- Electronic or online sale of services.
- Supply of other electronic and online services deliverable via the internet.
- Cloud services.
- Downloadable digital content.
Popular services affected by the new law include Netflix, Disney Plus, HBO Go, Google, Lazada, Shopee, and Amazon. Thus, expect price hikes of subscriptions and higher price tags on products.
However, the new law won’t impose VAT on educational and public interest services like online courses, webinars, and other digital educational offerings. Students using such services or programs don’t have to worry. The same exception applies to educational offerings by DepEd, CHED, and TESDA.
If you’re using digital bank services or similar functions, they are not affected by the law. This is because the law describes a digital service as any service delivered or subscribed over the internet or other electronic network with the use of information technology and where the delivery of the service may be automated.
If you’re a subscriber of online streaming platforms, a frequent online buyer, or an online seller, the VAT foreign digital services law will impact your wallet or business.
Commentary
The VAT foreign digital services law will level the playing field between local and foreign digital service providers. But its convincing part will likely be short-lived as the country is overshadowed by alleged corruption.
Taxes are paid by the people and should be given to the people. Yet government-run services are difficult for the public to access and enjoy. Nuisance ID requirements, troublesome paperwork, long lines, and light-years of waiting times are plaguing these services.
Let’s hope the new law will deliver its promise to the Filipino people.
