FRESH VIEWPOINTS: A NEW PERSPECTIVE
By Brian James Lu
Lazada and Shopee have become the dominant players in the Philippine e-commerce landscape, virtually shaping how Filipinos shop online. These platforms have revolutionized retail by making a wide range of products accessible at affordable prices.
What truly sets them apart is their extensive reach—even in the most remote parts of the country, their presence is felt through organized logistics networks and delivery riders who bring orders directly to customers’ doorsteps. This seamless and convenient buying experience has earned the trust of millions of Filipinos, particularly in areas where physical stores or malls are scarce. The affordability of goods, coupled with dependable delivery services, has made Lazada and Shopee household names and essential platforms for both buyers and small sellers across the nation.
With the implementation of the Digital Services Tax (DST), many Filipinos are now asking,will it affect platforms like Lazada, Shopee, and similar online marketplaces?
Under the DST, platforms such as Lazada, Shopee, and others are clearly defined as electronic marketplaces, or e-marketplaces, making them subject to the provisions of the law. E-marketplace refers to a digital platform that connects online buyers with sellers, helps complete the sale, processes payments, and provides post-purchase support. It also oversees the entire transaction from start to finish.
Thus, the answer to the above question is yes, but the impact may vary depending on the platform’s structure and residency status. Remember that the DST with its 12 percent VAT is applied to nonresident digital service providers, or DSPs. Platforms like Shopee and Lazada operate through registered local entities in the Philippines and, expectedly, are already VAT-registered and compliant with existing tax regulations. Therefore, the DST might not significantly affect their pricing, as their operations probably already incorporate VAT.
However, nonresident platforms—such as Temu and Shein, which do not have a local office or official representative in the Philippines—are now subject to VAT under the new law, which takes effect on June 1, 2025.
These platforms will be required to register with the Bureau of Internal Revenue (BIR), collect 12 percent VAT on their digital services, and remit it to the government. This new compliance burden could lead to higher prices for consumers, either through additional charges or overall price adjustments to cover the tax.
In essence, while the Digital Services Tax (DST) may have minimal impact on platforms already operating within the Philippine tax system, it represents an important shift for foreign-based digital service providers.
As President Ferdinand R. Marcos Jr. aptly stated during the signing of the Digital Services Law, “Local businesses and international digital platforms now compete on equal terms. We will no longer operate under disparate rules. If you are reaping the rewards of a thriving digital economy here, it is only right that you also contribute to its growth.”
With the Digital Services Tax (DST) taking effect on June 1, 2025, the key challenge lies in the efficient and consistent collection of the 12 percent value-added tax (VAT) by the Bureau of Internal Revenue (BIR) from nonresident digital service providers. While the law clearly outlines the obligation of these companies to remit VAT to the Philippine government, enforcement and compliance remain critical concerns.
Historically, the Philippines has recorded one of the lowest VAT collection efficiency rates in Southeast Asia, raising concerns about the government’s ability to fully capture potential revenues under this new tax regime. According to reports, the Department of Finance aims to generate an estimated PHP83.8 billion in revenue from the Digital Services Tax between 2024 and 2028, with 5 percent earmarked for the development of local creative industries. However, this projected amount appears modest when compared to the significant tax leakages that have historically hampered efficient tax collection in the country.
I recall Rep. Joey Salceda’s statement in March 2021, where he pointed out that the government loses around PHP30 billion annually due to cigarette smuggling. Similarly, in 2023, Bureau of Internal Revenue (BIR) Commissioner Romeo Lumagui Jr. revealed that the government is losing an estimated PHP500 billion each year to tax evasion. These figures highlight the persistent and large-scale revenue losses that continue to challenge the country’s tax collection efforts.
Just recently, the nation was alarmed by reports on the proliferation of fake Persons with Disability (PWD) identification cards. The Restaurant Owners of the Philippines expressed serious concern, noting that this issue has significantly impacted their revenues—especially for small and family-owned establishments—due to the mandated 12 percent VAT exemption and 20 percent discount on certain goods and services for PWDs. This abuse not only hurts business owners but also results in lower tax collections for the government, further straining public resources.
During a Senate hearing, Senator Win Gatchalian revealed that there could be as many as 8.5 million fake PWD IDs circulating in the country, resulting in an estimated PHP88 billion in lost tax revenue in 2023 alone.
If the BIR can effectively plug the gaps in tax collection, our country could be in a much stronger fiscal position—reducing the balance of payments deficit and lessening our reliance on both foreign and domestic debt. Addressing these leakages is key to achieving sustainable economic growth and financial independence.
Indeed, the implementation of the Digital Services Tax (DST) presents a critical opportunity—and a serious challenge—for BIR to prove its capability in ensuring efficient and fair tax collection. While the DST aims to modernize the country’s tax system and capture revenue from the growing digital economy, its effectiveness will ultimately depend on the BIR’s ability to enforce compliance, especially among nonresident digital service providers.
Given the persistent issues of tax evasion, smuggling, and fraudulent tax exemptions, the BIR is now called upon to step up and address the long-standing leakages in tax collection. Strengthening enforcement mechanisms, investing in digital infrastructure, and ensuring transparency are essential if the government is to truly benefit from this new tax measure. The DST is more than just a new revenue stream—it is a test of the BIR’s commitment to fulfilling its mandate and restoring public trust in the country’s tax system.
