Republic of the Philippines
HOUSE OF REPRESENTATIVES
Quezon City

Nineteenth Congress
First Regular Session

House BillNo.___ 372 __

Introduced by Representative JOEY SARTE SALCEDA

AN ACT
IMPOSING VALUE-ADDED TAX ON DIGITAL TRANSACTIONS,
IN THE PHILIPPINES, AMENDING FOR THE PURPOSE
SECTIONS 105, 108, 109, 110, 113, 114, AND 236 AND
ADDING A NEW SECTION 105-A OF THE NATIONAL INTERNAL
REVENUE CODE OF 1997, AS AMENDED

EXPLANATORY NOTE

The COVID-19 pandemic has hastened the adoption of digital technologies in the
private and public sectors. The internet economy in the Philippines significantly improved from
a pre-pandemic gross mean value (GMV) of Php 379.4 billion in 2019 to Php 921.4 billion
GMV in 2021 based on Google's e-Conomy SEA 2021 report. Moreover, the report cites the
intemet economy of the country as the fastest-growing among Southeast Asian countries and
is projected to grow by 24% by 2025.

‘The Philippines has implemented the value-added tax (VAT) since the 1980s with the
assumption that VAT is levied where the final consumption of the product or service takes
place. Because of the significant developments in e-commerce, international tax reforms
expanded the tax base to include nonresident digital service providers (DSPs). With the need
to improve the government's fiscal standing, the country needs to pursue the same direction.

This measure seeks to level the playing field between traditional and digital businesses
by clarifying the imposition of value-added tax (VAT) on DSPs. It follows House Bill No.
7425, which was approved on Third and Final Reading in the 18" Congress, under the
authorship and sponsorship of Rep. Sharon S. Garin and this Representation, Chairperson Joey
Sarte S. Salceda of the Committee on Ways and Means.

‘This bill clarifies that digital services such as digital advertising, subscription-based
services, and other online services that can be delivered through the intemnet as VAT-able. The
measure also aims to strengthen tax compliance through simplified invoicing and registration
requirements for VAT-registered nonresident DSPs.

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In view of the foregoing, the immediate passage of this bill is

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Republic of the Philippines
HOUSE OF REPRESENTATIVES
Quezon City

Nineteenth Congress
First Regular Session

372

House Bill No.

Introduced by Representative JOEY SARTE SALCEDA

AN ACT.

IMPOSING VALUE-ADDED TAX ON DIGITAL TRANSACTIONS
IN THE PHILIPPINES, AMENDING FOR THE PURPOSE
SECTIONS 105, 108, 109, 110, 113, 114, AND 236 AND
ADDING A NEW SECTION 105-A OF THE NATIONAL INTERNAL
REVENUE CODE OF 1997, AS AMENDED

Be it enacted by the Senate and House of Representatives of the Philippines in Congress
assembled:

SECTION 1. Section 105 of the National Internal Revenue Code of 1997. as amended, is
hereby further amended to read as follows:
“SEC. 105. Persons Liable. — Any person who. in the course of trade or business,
sells, barters, exchanges. leases goods or properties, INCLUDING THOSE DIGITAL
OR ELECTRONIC IN NATURE, renders services, INCLUDING THOSE
RENDERED ELECTRONICALLY, and any person who imports goods shall be
subject to the value-added tax (VAT) imposed in Sections 106 to 108 of this Code.
“The value-added tax is an indirect tax and the amount of tax may be shifted or
passed on to the buyer. transferee or lessee of the goods. properties or services. This
rule shall likewise apply to existing contracts of sale or lease of goods. properties, or

services at the time of the effectivity of Republic Act No. 7716.

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“The phrase ‘in the course of trade or business’ means the regular conduct or
pursuit of a commercial or an economic activity, including transactions incidental
thereto, by any person regardless of whether or not the person engaged therein is a
nonstock, nonprofit private organization (irrespective of the disposition of its net
income and whether or not it sells exclusively to members or their guests), or
government entity.

“The rule of regularity. to the contrary notwithstanding, services as defined in
this Code rendered in the Philippines by nonresident foreign persons shall be considered
as being rendered in the course of trade or business.”

SEC. 2. A new Section designated as Section 105-A of the National Internal Revenue Code
of 1997, as amended. is hereby amended to read as follows:

“SEC. 105-4. PERSONS LIABLE IN DIGITAL OR ELECTRONIC
TRANSACTIONS. ~ THE NONRESIDENT DIGITAL SERVICE PROVIDER IS
LIABLE FOR ASSESSING, COLLECTING, AND REMITTING THE VALUE-
ADDED TAX ON THE TRANSACTIONS THAT GO THROUGH ITS
PLATFORM.

“FOR THIS PURPOSE, THE TERM ‘DIGITAL SERVICE PROVIDER?
REFERS TO 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: PROVIDED, THAT THE DIGITAL SERVICE
PROVIDER MAY BE:

“(A) A THIRD PARTY, SUCH AS A SELLER OF GOODS AND

SERVICES WHO, THROUGH INFORMATION-BASED TECHNOLOGY OR

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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;

“(B) A PLATFORM PROVIDER FOR PROMOTION THAT USES THE
INTERNET TO DELIVER MARKETING MESSAGES TO ATTRACT
BUYERS;

“(C) 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 FOR IT;

“(D) 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

“(E) A SUPPLIER OF GOODS OR ELECTRONIC AND ONLINE
SERVICES THAT CAN BE DELIVERED THROUGH AN INFORMATION
TECHNOLOGY INFRASTRUCTURE, SUCH AS THE INTERNET.

“FOR THIS PURPOSE, THE TERM ‘BUYER’ REFERS TO ANY
PERSON WHO RESIDES OR CONSUMES TAXABLE DIGITAL SERVICES
IN THE PHILIPPINES FROM A DIGITAL SERVICE PROVIDER EITHER
FOR PERSONAL CONSUMPTION, OR FOR TRADE OR BUSINESS
PURPOSES. THE TERM “DIGITAL SERVICE” REFERS TO ANY SERVICE
THAT IS DELIVERED OR SUBSCRIBED OVER THE INTERNET OR OTHER

ELECTRONIC NETWORK AND WHICH CANNOT BE OBTAINED

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WITHOUT THE USE OF INFORMATION TECHNOLOGY AND WHERE
THE DELIVERY OF THE SERVICE MAY BE AUTOMATED. DIGITAL
SERVICES SHALL INCLUDE ONLINE LICENSING OF SOFTWARE,
UPDATES, AND ADD-ONS, WEBSITE FILTERS AND FIREWALLS;
MOBILE APPLICATIONS, VIDEO GAMES, AND ONLINE GAMES;
WEBCAST AND WEBINARS; PROVISION OF DIGITAL CONTENT SUCH
AS MUSIC, FILES, IMAGES, TEXT AND INFORMATION;
ADVERTISEMENT PLATFORM SUCH AS PROVISION OF ONLINE
ADVERTISING SPACE ON INTANGIBLE MEDIA PLATFORM; ONLINE
PLATFORM SUCH AS ELECTRONIC MARKETPLACES OR NETWORKS
FOR THE SALE, DISPLAY, AND COMPARISON OF PRICES OF TRADE
PRODUCTS OR SERVICES; SEARCH ENGINE SERVICES; SOCIAL
NETWORKS; DATABASE AND HOSTING SUCH AS WEBSITE HOSTING,
ONLINE DATA WAREHOUSING, FILE SHARING AND CLOUD STORAGE
SERVICES; INTERNET-BASED TELECOMMUNICATION; ONLINE
TRAINING SUCH AS PROVISION OF DISTANCE TEACHING, E-
LEARNING, ONLINE COURSES AND WEBINARS; ONLINE NEWSPAPERS
AND JOURNAL SUBSCRIPTION; AND PAYMENT PROCESSING
SERVICES.”

SEC. 3. Section 108 of the National Internal Revenue Code of 1997, as amended, is hereby

further amended to read as follows:

“SEC. 108. Value-added Tax on Sale of Services and Use or Lease of Properties.

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“(A) Rate and Base of Tax. ~ There shall be levied. assessed and collected. a
value-added tax equivalent to twelve percent (12%) of gross receipts derived from the
sale or exchange of services, including the use or lease of properties.

“The phrase ‘sale or exchange of services’ means the performance of all kinds
of services in the Philippines for others for a fee. remuneration or consideration,
WHETHER RENDERED ELECTRONICALLY OR OTHERWISE, including
those performed or rendered by construction and service contractors; stock, real estate.
commercial, customs and immigration brokers: lessors of property, whether personal
or real; warehousing services; lessors or distributors of cinematographic films; persons
engaged in milling. processing. manufacturing or repacking goods for others:
proprietors, operators or keepers of hotels, motels. resthouses, pension houses. inns.
resorts; proprietors or operators of restaurants. refreshment parlors, cafes and other
cating places, including clubs and caterers; dealers in securities: lending investors:
transportation contractors on their transport of goods or cargoes, including persons who
transport goods or cargoes for hire and other domestic common carriers by land relative
to their transport of goods or cargoes; common carriers by air and sea relative to their

transport of passengers, goods or cargoes from one place in the Philippines to another

place in the Philippines; sales of electricity by generation companies, transmission by
any entity, and distribution companies. including electric cooperatives: services of
franchise grantees of electric utilities, telephone and telegraph. radio and television

broadcasting and all other franchise grantees except those under Section 119 of this

Code and non-life insurance companies (except their crop insurances). including surety.

fidelity, indemnity and bonding companies: and similar services regardless of whether

or not the performance thereof calls for the exercise or use of the physical or mental

faculties. The phrase ‘sale or exchange of services" shall likewise include:

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“(1) The lease or the use of or the right or privilege to use any copyright, patent,
design or model, plan, secret formula or process, goodwill, trademark, trade brand or
other like property or right;

“(2) The lease or the use of, or the right to use of any industrial, commercial or
scientific equipment;

“(3) The supply of scientific, technical, industrial or commercial knowledge or
information;

“(4) The supply of any assistance that is ancillary and subsidiary to and is
furnished as a means of enabling the application or enjoyment of any such property, or
right as is mentioned in subparagraph (2) or any such knowledge or information as is
mentioned in subparagraph (3);

“(5) The supply of services by a nonresident person or the employee in connection
with the use of property or rights belonging to, or the installation or operation of any
brand, machinery or other apparatus purchased from such nonresident person;

“(6) The supply of technical advice, assistance or services rendered in connection
with technical management or administration of any scientific, industrial or commercial
undertaking, venture, project or scheme;

“(7) THE SUPPLY BY ANY PERSON, WHETHER RESIDENT OR
NONRESIDENT, OF DIGITAL SERVICES SUCH AS ONLINE
ADVERTISEMENT SERVICES, PROVISION FOR DIGITAL ADVERTISING
SPACE, AND ANY OTHER FACILITY OR SERVICE FOR THE PURPOSE OF
ONLINE ADVERTISEMENT;

“(8) THE SUPPLY BY ANY RESIDENT OR NONRESIDENT OF
DIGITAL SERVICES IN EXCHANGE FOR A REGULAR SUBSCRIPTION

FEE OVER THE USAGE OF THE SAID PRODUCT OR SERVICE;

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“(9) THE SUPPLY OF ELECTRONIC AND ONLINE SERVICES THAT
CAN BE DELIVERED THROUGH AN INFORMATION TECHNOLOGY
INFRASTRUCTURE, SUCH AS THE INTERNET;

“[7] (10) The lease of motion picture films. films. tapes and discs: and

“{8] (11) The lease or the use of or the right to use radio, television, satellite
transmission and cable television time.”

“Lease of properties shall be subject to the tax herein imposed irrespective of the
place where the contract of lease or licensing agreement was executed if the property is
leased or used in the Philippines.

“The term “gross receipts’ means the total amount of money or its equivalent
representing the contract price, compensation, service fee. rental or royalty, including
the amount charged for materials supplied with the services and deposits and advanced
payments actually or constructively received during the taxable quarter for the services
performed or to be performed for another person, excluding value-added tax.

“xxx

SEC. 4. Section 109 of the National Internal Revenue Code. as amended. is further amended
to read as follows:

“SEC. 109. Exempr Transactions. =
“(1) Subject to the provisions of [s]Subsection (2) hereof. the following transactions
shall be exempt from the value-added tax:

(A) XXX

“(B) Xxx

“(C) XXX

“(D) xxx

“(E) xxx

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“&) xxx

4G) xxx

“(H) Educational services INCLUDING ONLINE COURSES AND
WEBINARS rendered by private educational institutions, duly accredited by the
Department of Education (DepEd), the Commission on Higher Education (CHED), the
Technical Education and Skills Development Authority (TESDA) and those rendered
by government educational institutions;

“() xxx

“(J) xxx

“(K) xxx

“U)xxx

“(M) xxx

“(N) xxx

“(O)xxx

“(P)Xxx

“(Qxxx

“(R) Sale, importation, printing or publication of books and any newspaper,
magazine, review or bulletin which appears at regular intervals with fixed prices or
subscription and sale and which is not devoted principally to the publication of paid
advertisements|;], INCLUDING THOSE SOLD ELECTRONICALLY OR
ONLINE.”

“XXX.

SEC. 5. Section 110 of the National Internal Revenue Code, as amended, is further amended

to read as follows:

“SEC. 110. Tax Credits. —

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“(A) Creditable Input Tax. —

“() xxx

(2) XXX

“Provided, That the input tax on goods purchased or imported in a calendar month
for use in trade or business for which deduction for depreciation is allowed under this
Code shall be spread evenly over the month of acquisition and the fifty-nine (59)
succeeding months if the aggregate acquisition cost for such goods. excluding the VAT
component thereof, exceeds One million pesos P[hP]1.000,000): Provided, however.
That if the estimated useful life of the capital good is less than five (5) years, as used
for depreciation purposes, then the input VAT shall be spread over such a shorter
period: Provided, further. That the amortization of the input VAT shall only be allowed
until December 31, 2021 after which taxpayers with unutilized input VAT on capital
goods purchased or imported shall be allowed to apply the same as scheduled until fully
utilized: Provided, finally, That in the case of purchase of services, lease or use of
properties, the input tax shall be creditable to the purchaser. lessee or licensee upon
payment of the compensation, rental, royalty or fee.

“NOTWITHSTANDING THE FOREGOING, NO CREDITABLE INPUT
TAX SHALL BE CLAIMED BY NONRESIDENT DIGITAL SERVICE
PROVIDERS.

“Xxx.”
SEC. 6, Section 113 of the National Internal Revenue Code of 1997, as amended, is further
amended to read as follows:
“SEC. 113. Invoicing and Accounting Requirements for VAT-Registered
Persons. ~

“(A) Invoicing Requirements. — A VAT-registered person shalll issue:

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“() xxx
“Q) xxx

“(B) xxx

“(C)xxx

“(D) NOTWITHSTANDING SUBSECTION (A), A VAT-REGISTERED

NONRESIDENT DIGITAL SERVICE PROVIDER MAY ISSUE AN

ELECTRONIC INVOICE OR RECEIPT, SUBJECT TO THE RULES AND
REGULATIONS TO BE PRESCRIBED BY THE SECRETARY OF FINANCE
UPON THE RECOMMENDATION OF THE COMMISSIONER OF
INTERNAL REVENUE.

“[D] (E) xxx

“[E](F) xxx.

SEC. 7. Section 114 of the National Internal Revenue Code of 1997, as amended, is further

amended to read as follows:

“SEC. 114. Return and Payment of Value-Added Tax. —

“(A) In General. — Every person liable to pay the value-added tax imposed under
this Title shall file a quarterly return of the amount of his gross sales or receipts within
twenty-five (25) days following the close of each taxable quarter prescribed for each
taxpayer: Provided, however, That VAT-registered persons shall pay the value-added
tax on a monthly basis: Provided, finally, That beginning January 1, 2023, the filing
and payment required under the Subsection shall be done within twenty-five (25) days
following the close of each taxable quarter.

“Any person. whose registration has been cancelled in accordance with Section
236, shall file a return and pay the tax due thereon within twenty-five (25) days from

the date of cancellation of registration: Provided, That only one consolidated return

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shall be filed by the taxpayer for his principal place of business or head office and all
branches.

“(B) Where to File the Return and Pay the Tax. - Except as the Commissioner
otherwise permits. the return shall be filed with and the tax paid to an authorized agent
bank, Revenue Collection Officer or duly authorized city or municipal Treasurer in the
Philippines located within the revenue district where the taxpayer is registered or
required to register.

“(C) Withholding of Creditable Value-Added Tax. ~The Government or any of
its political subdivisions, instrumentalities or agencies, including government-owned
or -controlled corporations (GOCCs) shall, before making payment on account of each
purchase of goods and services which are subject to the value-added tax imposed in
Sections 106 and 108 of this Code, deduct and withhold the value-added tax imposed
in Sections 106 and 108 of this Code, deduct and withhold a final value-added tax at
the rate of five percent (5%) of the gross payment thereof: Provided, That beginning
January 1, 2021, the VAT withholding system under this Subsection shall shift from
final to a creditable system: Provided, further, That [the payment for lease or use of
properties or property rights to non-resident owners] UNLESS THEY ARE DULY-
REGISTERED WITH THE BUREAU OF INTERNAL REVENUE UNDER
SECTION 236, PAYMENTS TO NONRESIDENTS FOR SERVICES
RENDERED IN THE PHILIPPINES UNDER SECTION 108 shall be subject to
twelve percent (12%) withholding tax at the time of payment: Provided, finally, That
payments for purchases of goods and services arising from projects funded by Official
Development Assistance (ODA) as defined under Republic Act No. 8182. otherwise
known as the ‘Official Development Assistance Act of 1996", as amended, shall not be

subject to the final withholding tax system as imposed in this Subsection. For purposes

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of this Section, the payor or person in control of the payment shall be considered as the

withholding agent.”

SEC. 8. Section 236 of the National Internal Revenue Code (NIRC) of 1997, as amended,
is hereby further amended to read as follows:

“SEC. 236. Registration Requirements. ~

“(A) XXX

“(B) xxx

“(C) Xxx

“(D) xxx

“(B) xxx

“(F) xxx

“(G) Persons Required to Register for Value-Added Tax.

SU) xxx

“Q)xxx

“@) ANY NONRESIDENT DIGITAL SERVICE PROVIDER WHO, IN
THE COURSE OF TRADE OR BUSINESS, ENGAGES IN THE SALE OR
EXCHANGE OF DIGITAL SERVICES DEFINED UNDER THIS ACT, SHALL
BE LIABLE TO REGISTER FOR VALUE-ADDED TAX IF:

“(A) THE GROSS SALES OR RECEIPTS OF SUCH DIGITAL SERVICE
BUSINESS FOR THE PAST TWELVE (12) MONTHS BEFORE THE DATE OF
FILING OF VAT RETURN, OTHER THAN THOSE THAT ARE EXEMPT
UNDER SECTION 109A) TO (BB), HAVE EXCEEDED THREE MILLION
PESOS (P3,000,000); OR

“(B) THERE ARE REASONABLE GROUNDS TO BELIEVE THAT THE

GROSS SALES OR RECEIPTS OF THE DIGITAL SERVICE BUSINESS FOR

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‘THE NEXT TWELVE (12) MONTHS FROM THE DATE OF FILING OF VAT
RETURN, OTHER THAN THOSE THAT ARE EXEMPT UNDER SECTION
109(A) TO (BB), WILL EXCEED THREE MILLION PESOS (P3,000,000);
“PROVIDED, THAT THE BIR SHALL ESTABLISH A SIMPLIFIED
AUTOMATED REGISTRATION SYSTEM FOR NONRESIDENT DIGITAL
SERVICE PROVIDERS SUBJECT TO THE RULES AND REGULATIONS TO
BE PRESCRIBED BY THE SECRETARY OF FINANCE UPON THE
RECOMMENDATION OF THE COMMISSIONER OF INTERNAL

REVENUE.

XXX

SEC. 9. Implementing Rules and Regulations. — To carry out the provisions of this
Act, the implementing rules and regulations (IRR) shall be promulgated by the Department of
Finance (DOF), upon the recommendation of the BIR, and in coordination with the Department
of Information and Communications Technology (DICT) not later than ninety (90) days after
the approval of this Act.

SEC. 10. Transitory Clause. ~ Nonresident digital service providers shall immediately
be subject to value-added tax under this Act after one hundred eighty (180) days from the
effectivity of this Act.

SEC. 11. Separability Clause. ~ Should any provision of this Act or any part thereof
be declared invalid, the other provisions, so far as they are separable from the invalid ones,
shall remain in force and effect.

SEC. 12. Repeating Clause. ~ All laws, decrees, orders, and issuances, or portions
thereof, which are inconsistent with the provisions of this Act, are hereby repealed, amended,

or modified accordingly.

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SEC. 13. Effectivity. ~ This Act shall take effect fifteen (15) days after its publication
in the Official Gazette or in a newspaper of general circulation.

Approved,

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