Metro Manila, Philippines – Netizens are having “zero chill” over the new law imposing extra taxes on foreign digital service providers.

President Bongbong Marcos signed on Wednesday, Oct. 2, Republic Act 12023, which imposes a 12% value-added tax (VAT) on foreign digital transactions.

The move aims to close the revenue gap under the National Internal Revenue Code when it comes to taxing non-resident digital service providers, except for educational services.

“But make no mistake, we are not imposing new taxes. We are simply beefing up the BIR’s authority to collect VAT on digital services,” Marcos said. The government now has 90 days to craft implementing rules and regulations for the law.

The new VAT targets digital services like streaming (Netflix and Spotify), e-commerce (Amazon, Lazada), and others. Pretty much everything that goes through the cloud—from digital ads to video games—is now subject to the tax.

Digital services

The law defines digital services as anything supplied over the internet that uses information technology and is basically automated. These include:

+ Online search engines

+ Online marketplaces

+ Cloud services

+ Online media and ads

+ Online platforms

+ Digital goods

Exemptions

Digital educational services are off the hook. This includes online courses, webinars, and subscription-based services provided to educational institutions accredited by the Commission on Higher Education, Technical Education and Skills Development Authority, or Department of Education.

Finance Director Nina Asuncion explained, “To avail the exemption, these services need to be offered by recognized institutions. When it comes to subscriptions, the educational institution must be government-accredited."

Streaming platform fees

Internal Revenue chief Romeo Lumagui Jr. said consumers shouldn’t expect a spike in subscription fees just yet. However, he admitted that the government can’t prevent digital service providers from charging higher prices.

“It’s a business decision. They've always had to pay VAT, so they should’ve factored that in from the start,” Lumagui said. “Sure, a price increase could happen, but it won’t be an automatic 12% jump. It’ll likely be minimal.”

He said service providers are free to adjust their pricing as they see fit. “Whatever the price, we’ll calculate the VAT based on that.”

Non-compliant digital providers

Non-compliant providers could face getting blocked from operating in the country, Lumagui warned.

“Aside from monitoring tax payments, we’ll impose penalties and surcharges. If they don’t pay up, we can block their access to the Philippines,” he said.

As expected, the new law did not sit well with some consumers.

“This policy will backfire. People already struggling with the high cost of living will just cancel their subscriptions, and that’s gonna cut into the tax revenue,” one netizen said.

On X (Twitter), another user vented about the added burden on consumers: “They know this tax will just be passed down to customers, right? Maybe it’s time we take away politicians’ transport privileges and security details!”

Sonny Africa of think tank Ibon Foundation said the new law will hit consumers hard.

“The 12% VAT isn’t really on foreign service providers—it’s us, the consumers, who’ll shoulder it. This adds to the long list of consumption taxes hurting the poor and middle class, while the rich get away with tax cuts,” he said

In response to the concerns, Lumagui reassured consumers there is no need to worry.

“This law has good intentions,” he said in a briefing in Malacañang.

“We don’t expect prices to rise significantly, if at all. There’s even a chance prices won’t increase at all,” he added.