House approves bill imposing VAT on digital transactions in Philippines

The House approved House Bill 7425, or an Act Establishing Digital Taxation in the Philippines, garnering 167 affirmative votes, six negative votes, and one abstention during the third and final reading.

The bill aims to level the playing field between traditional and digital businesses by imposing a VAT on digital transactions.

The proposed bill seeks to amend Section 105-A of the National Internal Revenue with a provision making a non-resident digital service provider (DSP) liable for assessing, collecting, and remitting the VAT on the transactions that pass through its platform. In addition, The bill covers digital transactions on subscription-based video and audio streaming services, online advertising services, and other online digital services.

Further, House Bill 7425 defines a digital service provider as “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.”

The bill also defines the liable digital service provider (DSP) to be any of the following:

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

It imposes a lower 5% VAT on registered non-resident DSPs providing services to the government; otherwise, a 12% VAT is imposed.

However, the bill exempts books and other printed materials sold online and online courses and webinars by accredited private schools from the 12% VAT.

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