Now Streaming: VAT on Digital Services

This Christmas season, should we really stream or use digital services and "chill" following the enactment of RA 12023 or the Value-Added Tax (VAT) on Digital Services Law last Oct. 18, 2024?

- MARIONE NICOLE P. BIGARIN

As the wave of technology and digitalization transforms the commercial landscape, our lawmakers recognized the need to transform our tax system which was built on brick-and-mortar business models. Thus, following other countries, the Philippines enacted new legislative measures through RA 12023 to bring this growing digital economy into the tax net.

Let's take a closer look first at the salient features of RA 12023.

Definition of Digital Services and Classification of Digital Service Providers (DSP)

The law defines digital services as any service supplied over the internet or other electronic networks using information technology, where the supply of the service is essentially automated. Local service providers or the VAT-registered resident DSPs that supply digital services to consumers are required to register with the BIR following the policies and procedures applicable to Philippine taxpayers as provided in relevant tax laws.

On the other hand, non-resident DSPs, which the law defines as digital service providers with no physical presence in the Philippines, must manually or electronically register for VAT to enable them to remit the 12-percent VAT on the digital services consumed in the Philippines if the consumers are non-VAT registered. The law reiterates that a non-resident DSP is required to register for VAT if the person's gross sales for the past 12 months, excluding those exempted, have exceeded the required threshold or if there are reasonable grounds to believe that the gross sales for the next 12 months, excluding those exempted, will exceed the provided threshold.

Emphasized Difference of Non-resident DSPs