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President Ferdinand Marcos signed into law Republic Act (RA) No. 12023, which will impose a 12 percent Value Added Tax (VAT) on foreign digital service providers (DSP) which could generate over P100 billion in revenues last Wednesday.

Foreign DSPs include Netflix, Disney, and HBO.

Marcos stressed the new legislation is not a new tax, but merely aims to level the playing field for digital transactions by mandating foreign DSPs to pay VAT just as local ones.

"But make no mistake, we are not imposing new taxes, we are simply strengthening the authority and streamlining the process of the (Bureau of Internal Revenue) to collect value-added tax on digital services," Marcos said.

"This [revenue] is enough to build 42,000 classrooms, more than 6,000 rural health units, 7,000 kilometers of farm-to-market roads," the chief executive said during the ceremonial signing of the new legislation in Malacanang last Wednesday.

Once RA 12023 takes effect in 2025, the Department of Finance (DOF) and the National Tax Research Center expects the government will collect P7.25 billion worth of taxes during the first year of its implementation.

DOF expects the collection to continue to increase to P21.37 billion in 2026 to P26.27 billion by 2029.

Five percent of the incremental revenue from RA 12023 will be used for the development of creative industries.

"Then the rest would go to the general fund, so it could go to any program in the GAA (General Appropriations Act)," DOF director Euvimil Nina R. Asuncion said in a press briefing in Malacanang last Wednesday.

Exempted are digital services from banks, non-bank financial intermediaries and other non-bank financial intermediaries.

BIR Commissioner Romeo Lumagui Jr. is optimistic most foreign DSPs will comply with RA 12023 similar when they started collecting VAT from local DSPs last July.

All DSPs are required to register with BIR for VAT collection if their gross sales for the past 12 months have exceeded the three million pesos threshold or if they have reasonable expectation that their gross sales will exceed the threshold. DMS