As Featured on Philstar: Old habits die hard


In a 2018 article, I wrote about how I spent most of my weeknights playing video games and streaming random TV series, reality shows and movies. The same article emphasized the fact that no fixed rules have been laid down yet in the Philippines regarding the tax treatment of digital services.

Fast forward to 2024, there has not been much change in how I spend my free time. While I have already incorporated physical activities into my routine, I still think that the best way to relieve stress (for me, at least) is by immersing myself in a world where I can decimate the opposing team with Proximity Mines and an activated Minefield Sign, repeatedly watch the cast of Modern Family singing “Midnight Train to Georgia” or root for drag queens lip syncing for their lives.

Unfortunately, after more than half a decade since I wrote the article, it appears that there has not been much change as well in terms of the Philippines having clear rules on the taxation of digital services, especially those supplied by nonresident digital service providers (DSPs). Despite the expansion of the digital economy in the Philippines, we are quite behind in terms of laying down rules for taxing digital services. This was highlighted in Senator Sherwin Gatchalian’s sponsorship speech last Feb. 6 2024 for Senate Bill (SB) No. 2528, wherein he stated that the Philippines has always been up to date when it comes to the latest advancements in digital services but outdated when it comes to taxing the same and that our current tax laws do not contain a clear mandate for nonresident DSPs to pay VAT. “This underscores the need for legislation that will clarify that digital services provided for by nonresident digital service providers are subject to VAT in the Philippines if it is consumed within our borders.” (p. 26, Senate Journal No.47)

SB No. 2528 is the latest piece of legislation that proposes to impose VAT on digital services which are essentially automated. These include but will not be limited to (1) an online search engine; (2) online marketplace or e-marketplace; (3) cloud service; (4) online media and advertising; (5) online platform; or (6) digital goods.

In SB No. 2528, the Tax Code will be amended to expressly state that digital services, including those supplied by nonresident DSPs consumed in the Philippines, will be considered performed or rendered in the Philippines and thus, subject to VAT. Consequently, nonresident DSPs will be liable for assessing, collecting and remitting VAT on digital services consumed in the Philippines. However, this obligation appears to pertain only to sales made to customers who are not VAT-registered (mostly individuals). VAT-registered customers (mostly businesses) will instead be required to withhold the VAT due from the digital services they purchase.

The obligation for nonresident DSPs to assess, collect and remit VAT will also apply only if their gross sales in the Philippines exceed P3 million, which will require them to register for VAT with the Bureau of Internal Revenue (BIR). If a nonresident DSP is not required to register for VAT, its customers will also be required to withhold the VAT due.

Thus, under SB No. 2528, a nonresident DSP will only be liable to assess, collect and remit VAT if it is required to register for VAT and if the VAT pertains to sales to customers who are not VAT-registered. On the other hand, a Philippine customer will be required to withhold the VAT due from digital services supplied by nonresident DSPs if: (1) the customer is VAT-registered; (2) the nonresident DSP is not VAT-registered; or (3) both the customer and nonresident DSP are not VAT-registered.

In case a nonresident DSP fails to register for VAT, the BIR Commissioner will have the power to block the digital services of a DSP (with the assistance of the Department of Information and Communications Technology, through the National Telecommunications Commission), which is in line with his power to suspend the business operations of a taxpayer. This essentially means that a nonresident DSP will not be able to access the Philippine market.

One of the main purposes of the proposed bills imposing VAT on digital services is to level the playing field between local and foreign DSPs. SB No. 2528 shows promise in achieving this purpose. However, if SB No. 2528 is enacted into law, it is likely that implementation will be a pain point like in other jurisdictions.

How will nonresident DSPs register for VAT? How can the BIR monitor that a nonresident DSP has already breached the P3 million threshold? How will nonresident DSPs file VAT returns and pay the VAT due? How will individual customers withhold and remit VAT if the nonresident DSP is not required to register for VAT? Will the invoices issued by nonresident DSPs be required to comply with Philippine invoicing requirements?

While SB No. 2528 is currently pending further deliberation in the Senate, it should be noted that this bill has already taken into consideration House Bill No. 4122, SB No. 250, comments from stakeholders and has undergone Technical Working Group discussions at the Senate. After a third and final reading and a Bicameral Conference Committee, this may more or less be the version that will be submitted to the President for approval soon.

With VAT being a tax on consumption, sellers and customers are expected to play an active role in drafting the Implementing Rules and Regulations (IRR). And if there is one habit that taxpayers need to do away with, it is being nonchalant despite knowing that there are upcoming changes in Philippine tax rules. Taxpayers must participate in public consultations when able so that the concerned government agencies can come up with an IRR that should address issues rather than raise more questions.

Julius Patrick Acosta
Senior Manager
KPMG in the Philippines

Julius Patrick Acosta is a Senior Manager from the Tax Group of KPMG in the Philippines (R.G. Manabat & Co.), a Philippine partnership and a member firm of the KPMG global organization of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee. The firm has been recognized as a Tier 1 in Transfer Pricing Practice and in General Corporate Tax Practice by the International Tax Review. For more information, you may reach out to Julius Patrick C. Acosta or Manuel P. Salvador III through, social media or visit

This article is for general information purposes only and should not be considered as professional advice to a specific issue or entity. The views and opinions expressed herein are those of the author and do not necessarily represent KPMG International or KPMG in the Philippines.