Senate debates Bill to impose 12% VAT on nonresident digital service providers and platforms; Jan 2024 earliest implementation timeframe
Bill 4122 to impose Philippine VAT obligations on non-resident providers of digital or e-services is being debated this month by the Senate. A similar Bill was passed by the House of Representatives at the end of last year.
The Department of Finance is pushing its implementation, claiming it could raise P97 billion in taxes for the government. It would also level the playing field for local providers who are subject to the existing 12% standard VAT rate. However, opposition to the Bill maintains that it would lead to inflationary prices rises for consumers.
If passed, it would come into law 15 days later, and VAT will be due for supplies 180 days (6 months) later. This means 1 January 2024 could be the implementation date.
VAT would be levied on online advertisement services, digital services and the supply of other electronic services.
This would likely include a VAT annual sales registration threshold of PHP 3million (approx. €51,400 or $59,500).
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COVID-19 drives taking e-services
The Philippines is anxious to raise funds with a worsening budget deficit following the COVID-19 medical and economic crisis. A 12% VAT on digital services could raise P 10 billion per annum. The bill does not give an implementation date, but does indicate a six-month implementation period once the legislation passes. The proposed House Bill not only focuses on digital services but also on the sale of goods through marketplaces. Marketplaces are suggested as the collectors of VAT on behalf of sellers.
What digital services liable to Philippines VAT?
The House bill defines digital services as “any service delivered or subscribed over the internet or other electronic network which cannot be obtained without the use of information technology.” The law goes further:
- The supply of advertising space and other services for the purpose of online advertisement
- The supply of digital services in exchange of a regular subscription fee
- The supply of electronic or online services that can be delivered through an IT infrastructure such as the internet
This would likely include income from
- Software licensing
- Database services
- Online telecoms services
- Streaming and download media
- Mobile apps
- E-books and newspapers
- SaaS and cloud-based software
- Hosting and other internet services
- Online advertising
- Membership to dating memberships
- Online gaming
- Search engine services
It would not just be the responsibility of the provider, but potentially also any intermediary or marketplace selling the service of an underlying supplier – termed a network orchestrator.
Asia Pacific VAT on digital services
|Comments (click for details)||Rate||Date||Threshold||Comments|
|Australia||10%||Jul 2017||AUD $75,000|
|Armenia||20%||Jan 2022||AMD 115million|
|Bangladesh||5% - 15%||Jul 2019||–||B2B and B2C|
|Bhutan||7%||Jul 2021||Nu 5million|
|Cambodia||10%||Mar 2022||KHR 250m|
|China||6%-13%||N/a||Nil||Withholding VAT; B2B and B2C|
|Indonesia||11%||Aug 2020||IDR600m or 12k customers|
|Japan||10%||Oct 2015||JPY 10 million|
|Laos||7%||Feb 2022||LAK 400m|
|Nepal||13%||Jul 2022||Rupees 2m||Also 2% DST|
|New Zealand||15%||Oct 2016||NZD 60,000|
|Pakistan||2%||Sep 2021||Nil||Marketplace Withholding VAT|
|Philippines||12%||Jan 2024 ?||P 3million|
|Singapore||7%||Jan 2020||S$ 100,000|
|South Korea||10%||Jul 2015||Nil|
|Taiwan||5%||May 2017||NTD 480,000|
|Thailand||7%||Sep 2021||1.8m Baht|