House approves 12% VAT on digital transactions

MANILA – Voting 167-6-1, the House of Representatives has approved on final reading House Bill 7425, imposing a 12 percent value-added tax on digital transactions in the Philippines. 

According to its congressional fact sheet, the bill seeks to level the playing field between traditional and digital businesses by clarifying the imposition of value-added tax (VAT) on digital service providers and to generate revenues from new sources to fund the country’s efforts to recover from the adverse impact of COVID-19. 

It said the bill clarifies the imposition of VAT on electronic or online sale of services such as: online advertisement services and provision for digital advertising space; digital services in exchange for a regular subscription fee; and supply of other electronic and online services that can be delivered through the internet. 

Likewise it defines the liable digital service provider (DSP) to be any of the following: a third party that acts as a conduit for goods or services offered by a supplier to a buyer and receives commission therefor; a platform provider for promotion that uses the internet to deliver marketing messages to attract buyers; a host of online auctions conducted through the internet, where the seller sells the product or service to the person who bids the highest price; a supplier of digital services to a buyer in exchange for a regular subscription fee; and a supplier of electronic and online services that can be delivered through the internet. 

It requires nonresident DSPs to collect and remit the VAT on the transactions that pass through its platform. It exempts books and other printed materials that are sold electronically or online from VAT. It precludes non resident DSPs from claiming creditable input tax. It simplifies invoicing and registration requirements for VAT-registered nonresident DSPs. 

It imposes a 5% VAT on registered nonresident DSPs providing services to the government, otherwise a 12% VAT is imposed. It requires nonresident DSPs to register for VAT if gross sales or receipts for the past year have exceeded Php3 million. 

It provides a transition period of 180 days from the effectivity of the Act to enable the Bureau of Internal Revenue to establish implementation systems before VAT is imposed on DSPs. 

The House will submit the bill to the Senate. 

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