Consumer rights groups reject new VAT law on digital services, goods

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Two consumer rights groups criticized the government’s latest move to impose a 12 percent value added tax (VAT) on the digital services and products of foreign firms, marking a strong pushback from the sector that will be widely affected by the move.

In a statement sent to the Inquirer, the Consumers Union of the Philippines (CUP) said their group is surprised and sad to know of the additional taxes on goods and services enjoyed by ordinary Filipinos.

“Simply put, from the perspective of the consumers, this will be an additional burden because this will be passed to the pockets of every Juan and Maritess. Taxing this will be taxing simple happiness of the old, the (persons with disabilities), the mothers, children and the entire country,” CUP president Rodel Taton said Thursday.

Rights Action Philippines (RAP) media relations officer Ferdie Ferido told the Inquirer that this is an added burden from the perspective of an ordinary consumer, particularly those who rely on digital services of shopping apps.

“If this will be in the form of VAT, this will be passed on to end users and that the companies will just end up as collectors of the tax,” Ferido said also on Thursday.

READ: Marcos signs law imposing 12% VAT on digital services from offshore firms

He likewise cautioned that the move might lead to less patronage of these digital services and goods.

“What we see is that the most affected ones will be the low-income class, whose everyday lives revolve around the use of digital service constructions,” he added.

Reactions mixed among biz groups

Sought for comment, Korean Chamber of Commerce of the Philippines (KCCP) President Hyun Chong (Joseph) Um told the Inquirer that he thinks firms from his country will be less affected compared with US firms offering digital services.

“However, all these additional expenses will eventually (add) on their cost and turn over to the consumers (because) the firms will adjust themselves,” he said further, adding that the measure might affect more Asian companies in the future.

For its part, the European Chamber of Commerce of the Philippines (ECCP) said it is encouraging continued stakeholder engagement to achieve policy objectives.

“The chamber highlights the importance of aligning the VAT framework with international best practices and recommends that the legislation consider established guidelines from the (Organisation for Economic Co-operation and Development) and (International Monetary Fund),” the chamber said in a message sent to the Inquirer.

“Adopting these standards can help minimize business disruptions, reduce implementation costs, and lower barriers for new businesses, while supporting efficient compliance,” it added.

Meanwhile, Blockchain Council of the Philippines (BCP) President Donald Lim said in another interview that while they are not opposing taxation, he sees that the move will push people away from using formal channels to look for ways to avoid getting taxed.

“We are pro (taxation) for legitimate transactions. But if you do that, more people will go underground,” he said, referencing what he thinks will happen if the measure applies to cryptocurrencies, for instance.

READ: VAT on foreign digital services won’t lead to big fee hikes – BIR

Amid this middling take from the group, Lim said they will wait for the implementing rules and regulations of the law to be issued so that they can have a stronger stance and clearer take on the issue.

In contrast, Philippine Retailers Association (PRA) president Roberto Claudio thanked President Ferdinand Marcos Jr. and other government agencies for passing the measure into law.

“This now levels the business environment between local retailers and online foreign merchants,” Claudio said in a message sent to the Inquirer.

“This will also substantially boost tax revenue for the government’s social and educational programs,” he added.

DTI defends new VAT

Department of Trade and Industry (DTI) Acting Secretary Cristina Roque, meanwhile, expressed strong support for the newly-signed tax law.

“This landmark legislation is a significant step towards creating a more equitable and inclusive digital economy in the Philippines. By ensuring that all digital service providers, regardless of origin, contribute their fair share to the country’s tax system, we are promoting healthy competition and supporting the growth of our local MSMEs,” said Roque.

“This levels the playing field for our local MSMEs by removing the unfair advantage previously enjoyed by foreign digital service providers. With a more competitive landscape, our MSMEs can better leverage digital technologies to innovate, expand their reach, and thrive in the global marketplace,” she added.