Users of various online digital services in the Philippines, be prepared for subscription fee price hikes next year! The country will impose a 12% value-added tax (VAT) on digital services offered by foreign companies like Netflix and Spotify.
On October 2, 2024, President Ferdinand "Bongbong" Marcos Jr. (PBBM/BBM) signed a law (Republic Act 12023) imposing VAT on non-resident digital service providers (DSPs), such as:
- digital media
- digital music
- digital video games
- video-on-demand (VOD)
- digital ads
That said, we can expect price increases on subscription/transaction fees for our favorite audio or video streaming services, cloud services, online marketplaces, and other mobile apps, which are listed below:
- Netflix
- Disney Plus
- HBO Go
- Prime Video
- Spotify
- Lazada
- Shopee
- Amazon
The newly passed law is crafted to ensure that the digital landscape in the Philippines is more equitable.
Here are some of President Marcos' statements during the signing of the law that imposes 12 percent VAT on electronic or online sales of services.
With this law, we say that if your presence in the Philippine market is as real as your profits, then your tax responsibilities should also be equally tangible.
But make no mistake, we are not imposing new taxes; we are simply strengthening the authority and streamlining the process of the BIR [Bureau of Internal Revenue] to collect value-added tax on digital services.
Local business and international digital platforms now compete on equal terms. We no longer will be playing by different sets of rules. If you are reaping the rewards of a fruitful digital economy here, it is only right that you contribute also to its growth.
After all, whether you are a small tech start-up or a global tech giant based halfway around the world, if you are making money here in the Philippines, you are part of our community. And with that comes a shared responsibility.
On the other hand, digital educational services, like online courses and webinars provided by private institutions, are not covered by the law. This includes the sale of online subscription-based services to government-approved educational institutions, such as the Department of Education (DepEd), the Commission on Higher Education (CHED), and state universities and colleges.
Moreover, the BIR Commissioner is authorized by law to suspend the business operations of companies that fail to comply.
The Department of Finance (DOF) is directed to issue the implementing rules and regulations (IRR) of the law no later than 90 days (or three months) from its effectivity. There will be a further 120-day (or 4-month) transition period after the IRR takes effect to give the BIR time to set up implementation systems.
What do you think about this new law for digital services? Leave your comment below.
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