THE House of Representatives on Tuesday ratified via voice vote the bicameral committee conference report of a measure seeking to levy a 12% value-added tax (VAT) on digital services provided by companies without a physical presence in the Philippines.
Digital services refer to those provided over the internet or other electronic networks using information technology. These include online search engines, online marketplaces, cloud services, online media and advertising, online platforms, and digital goods.
Examples of nonresident digital service providers include Netflix, Amazon, Shein, and Rakuten.
In a House ways and means committee meeting before the plenary, tax officials said they will implement a two-tier approach in collecting digital VAT from consumers once the measure is signed into law.
Representatives from the Bureau of Internal Revenue (BIR) during a panel hearing said they are planning a reverse charge mechanism for digital service transactions of businesses whose gross sales exceed P3 million VAT threshold, putting on them the responsibility of remitting digital VAT obligations to the BIR.
Meanwhile, foreign digital service companies would be responsible for remitting digital tax obligations to the government for transactions with businesses whose gross sales fall below the P3 million threshold, as well as transactions with consumers, they added.
“A VAT-registered consumer is usually a business entity that engages in the selling of goods and services whose gross sales exceed P3 million, so they should register with the BIR and they will have a VAT registration number (for tax obligation tracking),” BIR Assistant Commissioner Larry M. Barcelo told the panel.
“Non-VAT registered consumers are those whose sales income does not exceed P3 million,” he added.
The measure is expected to generate around P7.5 billion in revenue for 2025, according to Nueva Ecija Rep. Mikaela Angela B. Suansing. A document from the ways and means committee projects that the measure will generate P20.8 billion between 2025 and 2028.
“For a Business-to-Business transaction, (a nonresident digital service provider) will issue an invoice to a VAT-registered business subscriber in the Philippines,” according to a ways and means committee document outlining the reverse charge mechanism.
Foreign digital service providers are required to create a commercial invoice for every sale they carry out, BIR Assistant Chief Brianna Kay T. De Los Santos said at the same hearing. Invoices should contain the date of transaction, reference number, and calculation of the VAT in the transaction.
All digital service providers are also required to register for VAT collection if their sales for the past year exceed the P3 million threshold or if they expect sales to breach this level for the next year, Ms. De Los Santos added.
The Senate on Monday ratified the measure’s bicameral conference committee report. — Kenneth Christiane L. Basilio
