Digital Services Bill

     

Senate Bill (SB) No. 2528, also known as the Digital Services Tax Bill, is one of several draft bills from the last two years that deal with VAT for digital services in the Philippines. The bill aims to impose a 12 % value-added tax (VAT) on digital services provided and consumed by resident or non-resident digital service providers without a physical presence in the Philippines. Thus, digital sales of goods and services, including those subscribed to online or provided over the internet, by all persons (resident or non-resident) will be included in the definition of sales covered by VAT. This will enable the government to effectively monitor and collect VAT from individuals or legal entities conducting business via digital platforms.

      

Electronic marketplaces such as Amazon and Temu, online licensing of software, mobile applications, online video and streaming platforms such as YouTube, TikTok, Netflix and Spotify, as well as search engine services such as Google and all social networks such as Instagram and Facebook fall within the scope of “digital services”.

    

Currently, these types of digital services that do not have a physical presence in the Philippines are not subject to VAT.

    

The bill provides that the assessment, collection and remittance of the 12 % VAT on transactions transmitted through platforms of non-resident digital service providers shall be deemed their liability. This refers to all digital transactions of buyers in the Philippines, regardless of their purpose, whether personal or business, and includes actions of third parties, e.g. as suppliers. If the consumers are subject to VAT, the reverse charge provision applies, making the recipient of the goods or services liable to pay VAT instead. In addition, tramsactions by non-resident foreign businesses which received services in the Philippines should also be taxed at 12 %.

    

If a business is already otherwise required to register for VAT, the planned tax introduction will not apply to these entities. However, non-resident suppliers of digital services that fall within the scope of the bill are now liable to register for VAT if gross sales for the past 12 months have exceeded or are expected to exceed PHP3 million.

    

To support the registration of non-resident digital service providers in the Philippines, the bill provides for the establishment of an automated registration system by the Bureau of Internal Revenue (BIR). This is intended to simplify the registration process.