THE impending implementation of a 12 percent Value Added Tax (VAT) on foreign digital service providers in the Philippines has sparked varied reactions from business leaders in Cebu.
While there is some agreement on the government’s intent to level the playing field, concerns persist about the potential impact on consumers and local businesses, particularly micro and small enterprises (MSMEs).
Starting June 1, 2025, a 12 percent VAT will be imposed on digital services, including media, music, video, video-on-demand and advertising provided by foreign companies.
Republic Act 12023 was signed into law by President Ferdinand Marcos Jr., in October 2024, defines digital services as including online search engines, online marketplace or e-marketplace, cloud service, online media and advertising, online platforms or digital goods.
The Cebu Chamber of Commerce and Industry (CCCI) acknowledged the rationale behind the VAT, saying it aims to create fairer competition between local and foreign digital entities and potentially boost domestic businesses.
However, the Chamber expressed apprehension that the added tax burden would likely be passed on to consumers and businesses, thus increasing costs and potentially limiting the affordability and accessibility of digital services.
The CCCI specifically mentioned the potential adverse effects on MSMEs in Cebu, a significant contributor to the region’s economy and a major consumer of digital tools.
While generally opposed to tax increases impacting end-users, the CCCI voiced optimism in the resilience and innovative spirit of Cebuano entrepreneurs.
The CCCI also affirmed its commitment to support MSMEs in vital sectors like food, agri-marine, manufacturing and tourism to adapt and thrive despite the new regulations.
The CCCI also pledged to continue providing resources and programs to help businesses stay informed and compliant with evolving tax laws in the global market.
Mark Ynoc, president of the Mandaue Chamber of Commerce and Industry (MCCI), concurred that the government’s move to apply VAT on foreign digital transactions aligns with the goal of fair taxation, mirroring practices for local businesses and international tax trends.
However, Ynoc echoed concerns about the inevitable cost transfer to consumers, potentially impacting affordability and access to crucial digital services.
He said revenues generated from this VAT should be strategically allocated to enhance the nation’s digital infrastructure, particularly in education and the promotion of innovation.
Steven Yu, MCCI past president, said while he acknowledges the likely price increases for primarily foreign digital services, the Philippine government has the right to impose taxes on services consumed within its borders and to establish a level playing field for domestic online services.
He said government could potentially generate at least P100 billion in tax revenue from this legislation, which could then be reinvested to benefit the country and foster the growth of domestic industries.
Yu also noted that many countries already tax digital services, making this a “welcome development” for the Philippines.
He believes the new VAT would not be significantly inflationary in the long run, citing rapid advancements in technology and the constant drivers of competition and obsolescence that tend to stabilize or reduce prices over time.
Yu said the new law would ultimately benefit the Philippine economy by generating essential tax revenue and establishing a regulatory framework for foreign digital service providers operating in the country.
Consumer survey
Meanwhile, an informal survey conducted by SunStar Cebu elicited various reactions from consumers who expressed concerns about increased costs and reduced accessibility.
Chrizelle Monique Sta. Cruz, 28, a resident of Cebu, said the new tax has prompted her to reconsider her subscriptions to online platforms, especially those she does not use frequently.
While she has yet to see direct price changes, Sta. Cruz acknowledged the potential need to manage her household budget.
“Other countries have the same law. Personally, I don’t have a big issue with the government imposing taxes. It’s all about fairness and revenue generation to fund public services,” Sta. Cruz said.
“My big issue is how the government will use this extra money—whether they will pocket it or not,” she added.
She also worries about the long-term impact on students who rely on digital services for education, fearing that increased costs could limit their access.
Another Cebu resident, who requested anonymity, fears a significant rise in the cost of basic digital subscriptions.
“I think the VAT is unnecessary for the government if we are talking about tax collection. The government could look for other ways to collect funds, such as streamlining existing revenue mechanisms or going after corrupt practices that will increase its revenue collection,” the respondent said.
The VAT’s impact on e-commerce platforms like Shopee and Lazada is also a concern for consumers, with potential increases in app costs or delivery fees.
The new VAT law aims to generate an estimated P105 billion in revenue over the next five years by taxing foreign digital service providers such as streaming platforms and other online services operating in the Philippines.
The regulations apply to individuals or entities (resident or nonresident) that supply or deliver digital services in the Philippines.
However, the sale, supply, or delivery of physical goods from a foreign territory to a consumer in the Philippines is excluded as
these transactions are considered importations subject to other taxes and duties. / KOC, CDF