Senate ratifies bicam report on 12% VAT on foreign digital service providers

SHEIN.COM

THE SENATE on Monday adopted the bicameral conference committee report on a bill imposing a 12% value-added tax (VAT) on digital service providers without a physical presence in the Philippines such as e-commerce giants Amazon, Shein and Taobao.

The reconciled version of the bill reinforces the Bureau of Internal Revenue’s (BIR) power to “impose and collect VAT on digital services and transactions,” Senator Sherwin T. Gatchalian said in a speech before the Senate adopted the report.

The joint explanation of the bicameral conference committee said both Houses of Congress agreed to use the Senate version as “the working draft.”

The committee allowed the Department of Finance (DoF) to set withholding tax rates for companies falling under the P3-million VAT threshold under the Tax Reform for Acceleration and Inclusion (TRAIN) law to protect small online businesses.

Under the measure, nonresident digital service providers and electronic marketplaces must register with the BIR for the remittance of VAT on their services. This will include online marketplaces like Amazon, Shein, Rakuten, Taobao, AliExpress and Temu.

Digital services refer to those provided over the internet or other electronic networks using information technology. These include online search engines, online marketplaces, cloud services, online media and advertising, online platforms and digital goods.

Currently, digital services provided by companies abroad are not subject to VAT, and lawmakers have said this hurts domestic rivals.

“We are committed to paving the way for a level playing field. We believe in the importance of creating an environment where our digital service providers, whether they are nonresident or local, operate under fair and square tax policies,” Mr. Gatchalian said.

Under the bill,  5% of the revenues from digital service VAT — or about P900 million — will be used to support the digital creative industry. — KATA

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