Philippines to tax foreign-based digital service providers
PHILIPPINE President Ferdinand Marcos on Wednesday (Oct 2) signed into law a measure that imposes a 12 per cent value-added tax on foreign-based firms providing digital services in the country.
The tax applies to a vast range of products and services including search engines, software licensing, mobile apps, online games, webinars, music, advertising, warehousing and cloud services, website hosting, and electronic marketplaces.
“Whether you are a small tech startup or a global tech giant based halfway around the world, if you are making money here in the Philippines, you are part of our community,” Marcos said in a speech at a signing ceremony attended by legislators.
“Local businesses and international digital platforms now compete on equal terms. We no longer will be playing by different sets of rules.”
Failure to pay the tax would lead to the suspension of business operations in the Philippines of a digital service provider.
Senate president Francis Escudero said the law plugs a tax revenue loophole caused by the “vagueness” of existing laws pertaining to taxation of e-commerce transactions, particularly foreign-based companies that provide services to local consumers.
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Other countries have been imposing the same tax on digital services and transactions now that their consumption has become almost universal, Escudero added.
The law exempts educational services such as online courses and webinars provided by privately owned schools.
Marcos said the government expects to raise 105 billion pesos (S$2.4 billion) in tax revenues over the next five years, to be used to build thousands of school classrooms, rural health clinics, and rural roads.
Five per cent of the revenues will be allocated to creative industries including artists, filmmakers and musicians.
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