When we first ventured into the field of education technology (edutech) during the onset of the COVID-19 pandemic in 2020, I began to develop a deeper understanding of the concept of the “digital economy” and how it has steadily evolved over the years.
What began as a necessary shift to online platforms has, in just five years, expanded into a transformative force that now shapes how we live, learn, work, and do business.
Observing this growth firsthand, I’ve come to appreciate the magnitude of its impact, not only in education but across every sector of society. So, what is the “digital economy?"
At its core, the digital economy refers to economic activities that are enabled by digital technologies. It encompasses various sectors, including e-commerce, digital finance, online education, telemedicine, cloud computing, and mobile applications.
The digital economy is built upon key pillars: digital infrastructure (such as broadband networks and data centers), digital platforms (like e-marketplaces and social media), and digital services (ranging from software to content streaming). Together, these elements create an interconnected ecosystem that drives innovation, builds global connectivity, and redefines traditional economic models.1
On a global scale, the digital economy continues to accelerate. According to the United Nations Conference on Trade and Development (UNCTAD), business-to-business e-commerce sales in 43 countries grew nearly 60% between 2016 and 2022, amounting to an estimated $27 trillion.2
In the Philippines, the digital economy was valued at ₱2.25 trillion in 2024, accounting for approximately 8.5% of the national GDP. Although the growth rate slowed to 7.6% compared to previous years, the upward trajectory remains notable.3 Analysts attribute this deceleration to macroeconomic challenges, such as inflation and rising interest rates, which have impacted consumer behavior and slowed the momentum of digital commerce.4
Recognizing the rapid expansion of digital services, ASEAN countries have implemented a variety of tax initiatives to ensure fair revenue collection and regulatory balance.
For example, Malaysia has imposed a digital service tax, Singapore enforces a Goods and Services Tax (GST), and Thailand applies value-added tax (VAT) on foreign digital providers.5 Vietnam has gone further by requiring digital platforms to withhold and report taxes on seller transactions.6
These regional efforts are complemented by the ASEAN Digital Economy Framework Agreement (DEFA), a strategic initiative aimed at harmonizing digital trade rules among member states. With this, ASEAN aspires to build a unified digital marketplace valued at an estimated $2 trillion by 2030.7
The Digital Tax Law in the Philippines
With renewed optimism in the potential of the digital economy to drive national growth, Filipino lawmakers have enacted strategic reforms aimed at creating a level playing field for both large enterprises and small business owners offering digital services. These reforms are a response to the shifting economic landscape, where traditional models of commerce are increasingly replaced by digital platforms that transcend borders.
The recent tax legislation was designed to recover revenues previously lost due to the vagueness of existing tax frameworks, particularly concerning foreign digital service providers operating virtually in the Philippines. These companies earn substantial profits from Filipino consumers without maintaining a physical presence, allowing them to bypass tax obligations that local businesses are required to fulfill.8 By addressing these disparities, lawmakers aim to ensure equitable tax enforcement and bolster fiscal sustainability.
In defense of this move, Philippine Senate President Francis “Chiz” Escudero emphasized the importance of fairness and fiscal responsibility. He stated:
“Lahat ng negosyo, malaki man o maliit, ay nagbabayad ng buwis. Hindi naman yata makatarungan na ang mga higanteng negosyante na hindi naka-base sa Pilipinas pero kumikita ng malaki sa pagbenta ng kanilang mga serbisyo sa mga Pilipino ay hindi sakop ng parehas na buwis. Pinapantay lang nitong bagong batas ang obligasyon sa pagbayad ng buwis sa lahat ng kumikita dito sa bansa.” *[All businesses, whether big or small, pay taxes. It would be unfair if giant companies that are not based in the Philippines but earn significantly from selling their services to Filipinos are not subject to the same taxes. This new law simply levels the playing field by ensuring that everyone earning income in the country has the same tax obligations.]* 9
On October 2, 2024, President Ferdinand R. Marcos Jr. signed Republic Act No. 12023 into law, officially imposing a 12% Value-Added Tax (VAT) on digital services. This move was grounded in the recognition that the digital services sector is rapidly expanding, yet many foreign providers remain outside the reach of local tax regulations.
According to the Bureau of Internal Revenue (BIR) and lawmakers, this discrepancy places local businesses, who are already subject to VAT, at a disadvantage and deprives the government of significant revenue opportunities.
Taxing digital services is intended to:
Promote fair competition across industries;
Increase national revenue;
Strengthen regulation of the digital economy; and
Ensure consistency in tax compliance across all types of business models.
Senate President Escudero further highlighted the financial impact of the law, projecting that it could generate between ₱80 billion and ₱145 billion in revenue from 2025 to 2028, depending on the level of compliance.10
What Digital Services Are Covered?
Under Republic Act No. 12023, the Philippines now imposes a 12% Value-Added Tax (VAT) on digital services. The law defines digital services broadly and includes both resident and non-resident providers that earn from Philippine-based consumers.
1. Online Advertising Services
Platforms offering paid ads, such as Google Ads, Facebook Ads, etc.
Cloud storage and computing (e.g., AWS, Google Cloud)
5. Online Gaming and In-App Purchases
Paid downloads, virtual goods, in-game currency
6. Online Courses and E-Learning Platforms
Platforms like Coursera, Udemy, or international online education services
7. Mobile Apps and Digital Downloads
App stores such as Google Play or Apple App Store, including purchases made within apps
8. Maintenance and Technical Support Services
IT services provided remotely through digital channels
How Will It Be Implemented?
The Bureau of Internal Revenue (BIR) has issued comprehensive guidelines detailing the registration process, tax obligations, and enforcement mechanisms.
📋 Registration and Compliance Requirements
Non-resident DSPs are required to register with the BIR within 60 days from the effectivity of the implementing regulations. They are not mandated to appoint a local representative but may do so for convenience. Registration does not equate to establishing a permanent establishment in the Philippines.
Resident DSPs must adhere to existing VAT obligations and are responsible for collecting and remitting VAT on digital services consumed in the Philippines.
💰 VAT Collection and Remittance
Business-to-Consumer (B2C) Transactions: Non-resident DSPs must collect 12% VAT on sales to Philippine consumers and remit the tax quarterly using BIR Form 2550-DS.
Business-to-Business (B2B) Transactions: In cases where the buyer is a VAT-registered entity in the Philippines, the reverse charge mechanism applies. The local business is responsible for declaring and paying the VAT to the BIR.
🧾 Invoicing and Reporting
DSPs are required to issue invoices containing specific information, including:
Date of transaction
Transaction reference number
Description of the digital service
Amount charged, indicating that it includes VAT
For B2B transactions, the invoice must also include the buyer's Tax Identification Number (TIN).
Penalties for Non-Compliance
Like any tax law, failure to comply with the Digital Tax Law has consequences. These may include:
Fines and surcharges
Business suspension
Blocking access to services for non-compliant foreign providers (as proposed by some lawmakers)
The BIR is expected to monitor online platforms closely, and work with local internet service providers (ISPs) to ensure foreign platforms comply with the law.
How Will It Affect Consumers?
The most noticeable impact will be increased prices for digital services due to the 12% VAT. For example:
A ₱499 monthly Netflix plan may rise to around ₱559
Adobe’s ₱1,200 Creative Cloud subscription could become ₱1,344
This price adjustment is not new globally. Many countries like Indonesia, India, Australia, and the European Union already implement similar digital taxes.
How Will It Affect Small Businesses and Freelancers?
If you're a freelancer using platforms like Fiverr or Upwork, or a small online seller using Facebook or Shopee, the law might affect:
Platform fees you pay (if VAT is applied)
Your pricing strategy, if VAT must be added
Recordkeeping and compliance, especially if you're earning above ₱3 million
However, many micro or small enterprises may not be directly affected if they do not meet the VAT threshold or only use digital services rather than provide them.
Quick Tips for VAT-registered Businesses
If you are a VAT-registered business in the Philippines, the 12% Value-Added Tax (VAT) you pay on your purchases, including digital services, can be used to reduce your VAT payable to the Bureau of Internal Revenue (BIR). This is through what is called input VAT crediting.
Here’s how it works:
✅ 1. Understanding Input VAT vs. Output VAT
Output VAT: This is the 12% VAT you charge your customers when you sell goods or services.
Input VAT: This is the 12% VAT you pay to your suppliers (including on digital services you purchase).
✅ 2. Crediting Your Input VAT
As a VAT-registered business, you can deduct your input VAT from your output VAT when filing your monthly and quarterly VAT returns:
For example:
Output VAT from your sales: ₱120,000
Input VAT from purchases (e.g., software subscription, ads): ₱40,000
Net VAT Payable = ₱80,000
✅ 3. Requirements to Claim Input VAT
To claim input VAT on digital services, you must:
Be VAT-registered.
Have a valid VAT invoice or official receipt from the digital service provider.
Ensure that the VAT was properly paid (either directly by the foreign provider or via the reverse charge mechanism for B2B transactions).
Keep accurate records and file BIR Form 2550M (monthly) and 2550Q (quarterly) on time.
So, What's Now? How's Our Future?
As with any newly enacted legislation, it is to be expected that the implementation of the digital services tax will elicit various reactions from stakeholders. Initial questions, concerns, and apprehensions are entirely valid, particularly as both government institutions and the private sector work toward integrating this reform into the existing economic system. While its full impact on our national economy remains to be seen, careful monitoring and collaboration will help determine its actual value.
The skepticism expressed by some members of the business community, especially in light of long-standing issues such as systemic inefficiencies and corruption, is understandable. Many are rightfully asking whether this tax reform will genuinely benefit the majority of Filipinos.
Despite these uncertainties, a strong and necessary hope remains that this measure will contribute meaningfully to the reduction of our national and foreign debt obligations, and that the revenues generated will be allocated toward building essential digital infrastructure. Such investments are critical if the Philippines is to keep pace with the demands of the rapidly evolving global economy.
In this light, we should allow this policy the opportunity to take root and mature. Let us uphold our responsibilities as citizens by complying with the law, contributing to the nation’s progress through our taxes, and maintaining faith in our country’s leadership. Most of all, let us remain hopeful for a future where sound governance, economic resilience, and national unity pave the way for a stronger and more prosperous Philippines.
ABOUT THE AUTHOR
Monica Molmisa is a Senior Editor and Vice President for Content Strategy of the Molmisa Point. She is the CEO of Molmisa Ventures Corporation and a seasoned speech-language pathologist, lecturer, and business communication trainer. Monica holds a BS in Speech Pathology from the University of the Philippines-Manila and a degree in Real Estate Management from iAcademy. She has served at The Medical City and Makati Medical Center and is currently a Special Lecturer at UP Manila. Monica also serves as the Treasurer of the Philippine Association of Speech-Language Pathologists (PASP).
Footnotes
1 TechTarget. (n.d.). Digital economy. Retrieved from https://www.techtarget.com/searchcio/definition/digital-economy
2 UNCTAD. (2024). Digital Economy Report 2024. Retrieved from https://unctad.org/publication/digital-economy-report-2024
3 Inquirer Business. (2025, May). Philippines’ digital economy growth slowed in 2024, PSA says. Retrieved from https://business.inquirer.net/522520/philippines-digital-economy-growth-slowed-in-2024-psa-says
4 Ibid.
5 BDB Law. (2022). Digital Services Tax: An ASEAN Comparison. Retrieved from https://www.bdblaw.com.ph/index.php/newsroom/articles/tax-law-for-business/1164-digital-services-tax-an-asean-comparison
6 ASEAN Briefing. (2022). Vietnam’s New E-Commerce Tax Decree: What Digital Platforms Need to Know. Retrieved from https://www.aseanbriefing.com/news/vietnams-new-e-commerce-tax-decree-what-digital-platforms-need-to-know/
7 World Economic Forum. (2025, May). ASEAN’s Digital Economy Framework Agreement: A Gamechanger. Retrieved from https://www.weforum.org/stories/2025/05/asean-digital-economy-framework-agreement-a-gamechanger
8 Senate of the Philippines. (2024, September 28). Press Release - Chiz says VAT on digital transactions to level playing field, boost gov't revenues by P80-B. Retrieved from https://web.senate.gov.ph/press_release/2024/0928_escudero2.asp
9 Ibid.
10 Ibid.
Main Reference:
LawPhil Project. (2024). Republic Act No. 12023: An Act imposing value-added tax on digital transactions. https://lawphil.net/statutes/repacts/ra2024/ra_12023_2024.html
Senate of the Philippines. (2024). Republic Act No. 12023: An Act imposing value-added tax on digital transactions [PDF]. https://web.senate.gov.ph/republic_acts/ra%2012023.pdf
The Digital Economy
When we first ventured into the field of education technology (edutech) during the onset of the COVID-19 pandemic in 2020, I began to develop a deeper understanding of the concept of the “digital economy” and how it has steadily evolved over the years.
What began as a necessary shift to online platforms has, in just five years, expanded into a transformative force that now shapes how we live, learn, work, and do business.
Observing this growth firsthand, I’ve come to appreciate the magnitude of its impact, not only in education but across every sector of society. So, what is the “digital economy?"
At its core, the digital economy refers to economic activities that are enabled by digital technologies. It encompasses various sectors, including e-commerce, digital finance, online education, telemedicine, cloud computing, and mobile applications.
The digital economy is built upon key pillars: digital infrastructure (such as broadband networks and data centers), digital platforms (like e-marketplaces and social media), and digital services (ranging from software to content streaming). Together, these elements create an interconnected ecosystem that drives innovation, builds global connectivity, and redefines traditional economic models.1
On a global scale, the digital economy continues to accelerate. According to the United Nations Conference on Trade and Development (UNCTAD), business-to-business e-commerce sales in 43 countries grew nearly 60% between 2016 and 2022, amounting to an estimated $27 trillion.2
In the Philippines, the digital economy was valued at ₱2.25 trillion in 2024, accounting for approximately 8.5% of the national GDP. Although the growth rate slowed to 7.6% compared to previous years, the upward trajectory remains notable.3 Analysts attribute this deceleration to macroeconomic challenges, such as inflation and rising interest rates, which have impacted consumer behavior and slowed the momentum of digital commerce.4
Recognizing the rapid expansion of digital services, ASEAN countries have implemented a variety of tax initiatives to ensure fair revenue collection and regulatory balance.
For example, Malaysia has imposed a digital service tax, Singapore enforces a Goods and Services Tax (GST), and Thailand applies value-added tax (VAT) on foreign digital providers.5 Vietnam has gone further by requiring digital platforms to withhold and report taxes on seller transactions.6
These regional efforts are complemented by the ASEAN Digital Economy Framework Agreement (DEFA), a strategic initiative aimed at harmonizing digital trade rules among member states. With this, ASEAN aspires to build a unified digital marketplace valued at an estimated $2 trillion by 2030.7
The Digital Tax Law in the Philippines
With renewed optimism in the potential of the digital economy to drive national growth, Filipino lawmakers have enacted strategic reforms aimed at creating a level playing field for both large enterprises and small business owners offering digital services. These reforms are a response to the shifting economic landscape, where traditional models of commerce are increasingly replaced by digital platforms that transcend borders.
The recent tax legislation was designed to recover revenues previously lost due to the vagueness of existing tax frameworks, particularly concerning foreign digital service providers operating virtually in the Philippines. These companies earn substantial profits from Filipino consumers without maintaining a physical presence, allowing them to bypass tax obligations that local businesses are required to fulfill.8 By addressing these disparities, lawmakers aim to ensure equitable tax enforcement and bolster fiscal sustainability.
In defense of this move, Philippine Senate President Francis “Chiz” Escudero emphasized the importance of fairness and fiscal responsibility. He stated:
On October 2, 2024, President Ferdinand R. Marcos Jr. signed Republic Act No. 12023 into law, officially imposing a 12% Value-Added Tax (VAT) on digital services. This move was grounded in the recognition that the digital services sector is rapidly expanding, yet many foreign providers remain outside the reach of local tax regulations.
According to the Bureau of Internal Revenue (BIR) and lawmakers, this discrepancy places local businesses, who are already subject to VAT, at a disadvantage and deprives the government of significant revenue opportunities.
Taxing digital services is intended to:
Senate President Escudero further highlighted the financial impact of the law, projecting that it could generate between ₱80 billion and ₱145 billion in revenue from 2025 to 2028, depending on the level of compliance.10
What Digital Services Are Covered?
Under Republic Act No. 12023, the Philippines now imposes a 12% Value-Added Tax (VAT) on digital services. The law defines digital services broadly and includes both resident and non-resident providers that earn from Philippine-based consumers.
1. Online Advertising Services
2. Subscription-Based Services
3. Digital Platforms and Marketplaces
4. Software and Cloud-Based Services
5. Online Gaming and In-App Purchases
6. Online Courses and E-Learning Platforms
7. Mobile Apps and Digital Downloads
8. Maintenance and Technical Support Services
How Will It Be Implemented?
The Bureau of Internal Revenue (BIR) has issued comprehensive guidelines detailing the registration process, tax obligations, and enforcement mechanisms.
📋 Registration and Compliance Requirements
Non-resident DSPs are required to register with the BIR within 60 days from the effectivity of the implementing regulations. They are not mandated to appoint a local representative but may do so for convenience. Registration does not equate to establishing a permanent establishment in the Philippines.
Resident DSPs must adhere to existing VAT obligations and are responsible for collecting and remitting VAT on digital services consumed in the Philippines.
💰 VAT Collection and Remittance
🧾 Invoicing and Reporting
DSPs are required to issue invoices containing specific information, including:
For B2B transactions, the invoice must also include the buyer's Tax Identification Number (TIN).
Penalties for Non-Compliance
Like any tax law, failure to comply with the Digital Tax Law has consequences. These may include:
The BIR is expected to monitor online platforms closely, and work with local internet service providers (ISPs) to ensure foreign platforms comply with the law.
How Will It Affect Consumers?
The most noticeable impact will be increased prices for digital services due to the 12% VAT. For example:
This price adjustment is not new globally. Many countries like Indonesia, India, Australia, and the European Union already implement similar digital taxes.
How Will It Affect Small Businesses and Freelancers?
If you're a freelancer using platforms like Fiverr or Upwork, or a small online seller using Facebook or Shopee, the law might affect:
However, many micro or small enterprises may not be directly affected if they do not meet the VAT threshold or only use digital services rather than provide them.
Quick Tips for VAT-registered Businesses
If you are a VAT-registered business in the Philippines, the 12% Value-Added Tax (VAT) you pay on your purchases, including digital services, can be used to reduce your VAT payable to the Bureau of Internal Revenue (BIR). This is through what is called input VAT crediting.
Here’s how it works:
✅ 1. Understanding Input VAT vs. Output VAT
✅ 2. Crediting Your Input VAT
As a VAT-registered business, you can deduct your input VAT from your output VAT when filing your monthly and quarterly VAT returns:
For example:
Output VAT from your sales: ₱120,000
Input VAT from purchases (e.g., software subscription, ads): ₱40,000
Net VAT Payable = ₱80,000
✅ 3. Requirements to Claim Input VAT
To claim input VAT on digital services, you must:
So, What's Now? How's Our Future?
As with any newly enacted legislation, it is to be expected that the implementation of the digital services tax will elicit various reactions from stakeholders. Initial questions, concerns, and apprehensions are entirely valid, particularly as both government institutions and the private sector work toward integrating this reform into the existing economic system. While its full impact on our national economy remains to be seen, careful monitoring and collaboration will help determine its actual value.
The skepticism expressed by some members of the business community, especially in light of long-standing issues such as systemic inefficiencies and corruption, is understandable. Many are rightfully asking whether this tax reform will genuinely benefit the majority of Filipinos.
Despite these uncertainties, a strong and necessary hope remains that this measure will contribute meaningfully to the reduction of our national and foreign debt obligations, and that the revenues generated will be allocated toward building essential digital infrastructure. Such investments are critical if the Philippines is to keep pace with the demands of the rapidly evolving global economy.
In this light, we should allow this policy the opportunity to take root and mature. Let us uphold our responsibilities as citizens by complying with the law, contributing to the nation’s progress through our taxes, and maintaining faith in our country’s leadership. Most of all, let us remain hopeful for a future where sound governance, economic resilience, and national unity pave the way for a stronger and more prosperous Philippines.
Monica Molmisa is a Senior Editor and Vice President for Content Strategy of the Molmisa Point. She is the CEO of Molmisa Ventures Corporation and a seasoned speech-language pathologist, lecturer, and business communication trainer. Monica holds a BS in Speech Pathology from the University of the Philippines-Manila and a degree in Real Estate Management from iAcademy. She has served at The Medical City and Makati Medical Center and is currently a Special Lecturer at UP Manila. Monica also serves as the Treasurer of the Philippine Association of Speech-Language Pathologists (PASP).
Footnotes
1 TechTarget. (n.d.). Digital economy. Retrieved from https://www.techtarget.com/searchcio/definition/digital-economy
2 UNCTAD. (2024). Digital Economy Report 2024. Retrieved from https://unctad.org/publication/digital-economy-report-2024
3 Inquirer Business. (2025, May). Philippines’ digital economy growth slowed in 2024, PSA says. Retrieved from https://business.inquirer.net/522520/philippines-digital-economy-growth-slowed-in-2024-psa-says
4 Ibid.
5 BDB Law. (2022). Digital Services Tax: An ASEAN Comparison. Retrieved from https://www.bdblaw.com.ph/index.php/newsroom/articles/tax-law-for-business/1164-digital-services-tax-an-asean-comparison
6 ASEAN Briefing. (2022). Vietnam’s New E-Commerce Tax Decree: What Digital Platforms Need to Know. Retrieved from https://www.aseanbriefing.com/news/vietnams-new-e-commerce-tax-decree-what-digital-platforms-need-to-know/
7 World Economic Forum. (2025, May). ASEAN’s Digital Economy Framework Agreement: A Gamechanger. Retrieved from https://www.weforum.org/stories/2025/05/asean-digital-economy-framework-agreement-a-gamechanger
8 Senate of the Philippines. (2024, September 28). Press Release - Chiz says VAT on digital transactions to level playing field, boost gov't revenues by P80-B. Retrieved from https://web.senate.gov.ph/press_release/2024/0928_escudero2.asp
9 Ibid.
10 Ibid.
Main Reference:
LawPhil Project. (2024). Republic Act No. 12023: An Act imposing value-added tax on digital transactions. https://lawphil.net/statutes/repacts/ra2024/ra_12023_2024.html
Senate of the Philippines. (2024). Republic Act No. 12023: An Act imposing value-added tax on digital transactions [PDF]. https://web.senate.gov.ph/republic_acts/ra%2012023.pdf
Comments
Post a Comment