New bill seeks to impose VAT on digital transactions

January 13, 2023

By: Ronald Mark C. Lleno and Patrice Jane L. Romero

The Philippine government is seeking to take advantage of the extensive use of digital service providers by Philippine consumers to generate more revenue. In November 2022, the House of Representatives approved House Bill (HB) No. 4122, which amends the National Internal Revenue Code (the Tax Code) by imposing a 12% value added tax (VAT) on digital transactions. As most, if not all, Association of Southeast Asian Nations (ASEAN) countries have already introduced a tax on digital services, the Philippines is seeking to keep in step with its ASEAN neighbors. HB No. 4122 is currently pending before the Senate. To become law, HB No. 4122 must also be passed on three readings by the Senate and approved by the president.

Proposed amendments to Tax Code

The salient amendments to the Tax Code under HB No. 4122 are as follows:

• Persons who, during trade or business, engage in the sale, barter, exchange, or lease of digital or electronic goods, or those who render services electronically, are now expressly subject to VAT. This includes non-resident digital service providers.
• A "digital service provider" refers to a service provider of digital services or goods to a buyer, through operating an online platform for the purposes of buying and selling of goods or services or by making transactions for the provision of digital services on behalf of any person. A digital service provider may be:
  • a third party that sells multiple products, through information-based technology or the internet, for its own account or as an intermediary;
  • a platform provider that uses the internet for marketing purposes;
  • a host of online auctions conducted through the internet;
  • a supplier of digital services in exchange for a regular subscription fee; or
  • a supplier of goods or services that can be delivered through an information technology infrastructure.

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