Foreign entities that provide digital services to their customers here in the Philippines will have to pay their fair share of taxes as President Ferdinand “Bongbong” Marcos, Jr., recently signed into law Republic Act Number 12023 (RA12023) which imposes the 12% value-added tax (VAT) on foreign digital service providers (DSPs), according to a Philippine News Agency (PNA) news article.
To put things in perspective, posted below is an excerpt from the PNA news article. Some parts in boldface…
President Ferdinand R. Marcos Jr. signed into law on Wednesday a measure imposing a value-added tax (VAT) on foreign digital services providers (DSPs).
A priority measure of the administration, Republic Act (RA) 12023 imposes a 12 percent VAT on foreign DSPs, such as Netflix, Disney, and HBO, to generate additional revenue for the government.
In his message, Marcos said the new law would level the playing field for local providers.
“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 startup or a global tech giant based halfway around the world, if you are making money here in the Philippines, you’re a part of our community, and with that comes a shared responsibility,” Marcos said.
According to the President, about PHP105 billion in revenue is expected to be collected in the next five years due to RA 12023.
The amount is enough to build 42,000 classrooms, more than 6,000 rural health units, and 7,000 km of farm-to-market roads, the Chief Executive noted.
Additionally, 5 percent of the revenues generated by the law will be allocated to the local creative industry.
“This means our artists, filmmakers, musicians, the very people who fill our platforms with storage and the content, will directly benefit. It ensures that our creative talents are not just surviving in a competitive digital market, but will be allowed by fairness and progress,” Marcos said.
The President thanked the legislators for passing the measure even as he called on companies covered by the law to support and heed the rules of the Act.
‘Fair and square’ tax policies – Senator Sherwin Gatchalian, meanwhile, said the new law is expected to address revenue losses by clarifying the taxability of non-resident digital service providers and addressing the ambiguity in the previous law.
“We believe in the importance of creating an environment where our digital services providers, whether they are nonresident or local, operate under fair and square tax policies,” Gatchalian said in a statement. He said the new measure does not mean a new tax imposition.
Let me end this post by asking you readers: What is your reaction to this recent development? Do you think the new law will be good for the economy of the Philippines? Do you think that the foreign digital service providers will somehow raise the subscription rates and fees for their customers here in the Philippines in response to the new law?
You may answer in the comments below. If you prefer to answer privately, you may do so by sending me a direct message online.
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