House Bill No. 7425 has passed the third and final reading in the House of Congress. This bill seeks to impose value-added tax (VAT) on digital transactions. Once signed into law, it will not only raise tax revenues but also level the playing field between traditional and digital businesses. 

The House Bill is sponsored by Representative Joey Salceda and Sharon Garin. It seeks to impose a 12% value-added tax (VAT) on digital transactions in the country. As proposed, VAT will be imposed on the electronic or digital sale of services such as:

• Online advertisement services and provision for digital advertising space;
• Digital services in exchange for a regular subscription fee such as Netflix and Spotify;
• Supply of other electronic and online services that can be delivered through the internet

Moreover, the proposed bill wants to add a new section in the National Internal Revenue Code of 1997. A section that requires foreign digital service providers (DSPs) to collect and remit VAT for all transactions that go through their platforms.

The bill also requires nonresident DSPs to register for VAT if gross sales or receipts for the past year have exceeded Php3 million. However, the bill will only impose 5% VAT on registered nonresident DSPs providing services to the government.

In recent years, revenues generated from online activities have shown drastic growth during the pandemic. The proposed bill, if signed into law, could generate P10.66 billion in government revenues annually based on initial estimates from the Department of Finance. However, this 12% percent VAT would be the highest digital tax in the ASEAN region according to Gabriela Women’s Party Rep. Arlene Brosas.