Digital, traditional firms now on equal footing with online VAT

Finance Secretary Benjamin Diokno hailed the passage on third reading at the House of Representatives last Nov. 14 of a bill related to imposing the value-added tax (VAT) on digital transactions, saying this would level the playing field between traditional and new businesses.

Diokno said that, in particular, House Bill (HB) No. 4122 entitled Imposing Value-Added Tax on Digital Transactions in the Philippines, would make things fair for businesses that could not make the switch to digital.

“It is only right that we allow our businesses to operate on even ground, and this bill rightfully clarifies which digital services to tax,” the Finance chief said in a statement.

“It is not fair to only tax traditional businesses like restaurants and retail stores, and not tax online platforms like Netflix,” he added.

The bill describes digital services as any service that is delivered or subscribed over the internet or other electronic networks.

Such services cannot be obtained without the use of information technology and the delivery of such services may be automated.

Meanwhile, digital service providers provide digital services or goods to a buyer. This may be through operating an online platform for the purpose of buying and selling goods and services or by making transactions for the provision of digital services on behalf of any person.

Diokno said HB 4122 does not impose new taxes, but clarifies the imposition of VAT on electronic or digital services such as digital advertising, subscription-based services, and other services using information communication technology-enabled infrastructure, among others.

Even then, educational services such as online courses and webinars rendered by accredited private educational institutions are exempted from the imposition of VAT.

Based on Department of Finance estimates, imposing the 12-percent VAT on providers of online advertisement services and digital services, as well as supply of other electronic and online services, would generate P13.2 billion in additional revenues per year.