Imposition of VAT on digital transactions

January 14, 2022

Introduction

In September 2021, the House of Representatives of the Philippines approved House Bill (HB) 7425 upon its third reading. HB 7425 seeks to impose a 12% value-added tax (VAT) on digital transactions in the Philippines.

HB 7425 proposes to amend section 105 of the National Internal Revenue Code (the Tax Code) to:

• consider digital or electronic goods as "taxable goods";
• consider services that are rendered electronically as "taxable services"; and
• add a new provision wherein non-resident digital service providers will be liable for assessing, collecting and remitting VAT on transactions that go through their respective platforms.

Digital service providers

The HB 7425 provides that a "digital service provider" is a:

service provider of a digital service or good to a buyer, through operating an online platform for purposes of buying and selling of goods or services or by making transactions for the provision of digital services on behalf of any person.

According to HB 7425, a "digital service provider" may be:

• a third party who through information-based technology or the Internet, sells products for its own account (such as a seller of goods and services);
• one who acts as an intermediary between a supplier of goods and services (such as a merchandiser or retailer), who collects or receives payment for such goods and services from a buyer on behalf of the supplier and receives a commission thereon;
• 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 offers the highest price for it;
• a supplier of digital services to a buyer in exchange for a regular subscription fee over the usage of the said product or service; or
• a supplier of goods or electronic and online services that that can be delivered through an information technology infrastructure, such as the Internet.

Continue reading on the Lexology site.