Digital transactions VAT bill elevated to Senate plenary

THE COMMITTEE report of a Senate bill seeking to impose a 12% value-added tax (VAT) on digital transactions, which now includes nonresident foreign online marketplaces with customers in the Philippines, has been sponsored out to the plenary.

During Tuesday’s plenary session, Ways and Means Committee chairman Senator Sherwin T. Gatchalian, who sponsored Senate Bill No. 2528, said the measure will require nonresident electronic marketplaces to withhold and remit VAT on transactions that are coursed through their platforms, provided the buyer is in the Philippines.

“This is not a new tax imposition,” he said. “We are just collecting the tax that we ought to be collecting from non-resident digital service providers.”

Under the measure, a nonresident digital service is defined as not having a “physical presence” in the Philippines.

He noted that foreign online streaming platforms with subscribers in the Philippines do not pay 12% VAT under the current Tax Code.

The Department of Finance is expecting the tax measure to bring in P83.8 billion in revenue from 2024 to 2028.

Under the bill, online courses, seminars and training programs by private educational institutions accredited by the Department of Education and the Commission on Higher Education are exempt from remitting 12% VAT.

It will also impose a “reverse charge mechanism” which will make a recipient of the goods or services liable to pay the VAT instead of the provider.

“For instance, if a VAT-registered resident corporation buys materials through Amazon.com, It will then be the VAT-registered taxpayer who shall be liable to withhold and remit the VAT,” Mr. Gatchalian said.

The Commissioner of Internal Revenue will also be authorized to order the blocking or suspension of the services of digital providers if they do not pay the 12% VAT. The actual blocking will be carried out by the National Telecommunications Commission.

The House of Representatives approved a similar measure in November 2022.

“We believe in the importance of creating an environment where our digital service providers, whether they are nonresident or local, operate under fair and square tax policies,” Mr. Gatchalian said.

“We are committed to (creating) a level playing field.” — John Victor D. Ordoñez