Congress Approves 12% VAT for Digital Transactions

In an effort to find new revenue sources for the government, the House of Representatives passed a bill that will impose a 12 percent value-added tax (VAT) on digital services such as those offered by Netflix, Lazada, Facebook, and others.

Department of Finance Assistant Secretary Dakila Elteen M. Napao said that based on estimates, it (will generate) P10.66 billion (in annual revenues). The official added that this would be on top of the existing VAT on e-commerce that is already being collected.

Under the said measure, all transactions through digital means are subject to a 12 percent VAT. The tax measure will apply to service providers operating an online platform intended to facilitate the buying and selling of goods. Apart from that, those who provide online advertisement services and provide digital services in exchange for subscription fees are also a subject for the tax.

tax on digital transactions

The bill defines digital services to include mobile apps, video and online games, online software licensing, webinars, search engine services, social networks, electronic marketplaces, file sharing and cloud storage services, advertising platforms, website-hosting, internet-based telecommunication, online training, e-learning, online newspapers, and payment processing services.

No new taxes

House Ways and Means Committee Chairman and Albay Representative Jose Ma. Clemente S. Salceda said that they are imposing new taxes and are simply clarifying that these businesses should be ‘VATed.’

“In general, if you sell, you pay VAT, unless you fall under the exemptions for small businesses,” he added.

tax on digital transactions

However, he also said that sole proprietors whose net income is below P250,000 are exempted from paying and filing income taxes. “So, the small Facebook online seller will not be taxed. I guarantee you,” he further said.

The country’s digital economy boomed during the implementation of community quarantine, as people are forced to stay at home, and physical shops are closed. The digital transaction tax measure is one of the priorities of the House’s panel, together with the proposals to tax Philippine Offshore Gaming Operations and update the road users’ tax.