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The new “VAT on Digital Services Law” for the Philippines signed Oct. 2, 2024, ushered in a big change in the digital economy as a 12% value-added tax applies equally to local and foreign DSPs. While the law can make things fairer, since foreign companies pay tax on earnings from Filipino consumers, it may have strong effects on cryptocurrency users and businesses in the country.
Positive Impacts: Leveling the Playing Field: Now, with the levelling of the competition, local cryptoplatforms, exchanges, as well as other digital services will be able to level out. Previously, it was a sole duty of local businesses to include VAT in their prices, while foreign companies had not incurred that expense, making it more expensive on foreign platforms due to less cost. Now, with the law, VAT on DSPs, cryptocurrency exchanges, among others, will be required from abroad, giving locals the chance of a better market differential.
Better Services for Users: This legislation will make the marketplace more just and might spur more focus to improving their product by service providers in the digital service space, such as cryptocurrency ones. Companies will spend more money on better customer service, stronger security measures, or new features-all of which could be a result for users of cryptocurrency.
Revenue to the Government: Revenue should amount to PhP105 billion in the first five years. Appropriation from this tax by the government, on digital infrastructures, clearer regulations, or what have you, may help increase cryptocurrency use and further secure the digital economy over the long term.
Issues for Cryptocurrency Users: The flip side is that it means the fees might rise for crypto users, especially when using foreign exchanges that will now have to add the 12% VAT. Such costs can potentially be passed on to the consumers as well, which would mean a higher price for people wishing to trade, send, or even simply store cryptocurrency on such foreign exchanges.
A Transition to Decentralized and Unregulated Platforms: Many users may transition to decentralized exchanges or unregulated platforms to avoid such costs. This may prove to be a cash-flow efficient solution in the short term but carries the risk of platform security, among other things; such unregulated platforms would not have similar safeguards in place to prevent scams or potential frauds.
But this would add complexity to businesses, especially to cryptocurrency companies since it operates globally. For them, it might be a headache to keep track of the different tax rules. Further complexity might equate to higher operational costs and can possibly affect the services they provide to Filipino users.
Reviewing the Outlook: This might be the first step toward longer regulations on digital currency, encompassing cryptocurrencies. This shows that the government is serious about digital assets and may be planning further rules on how crypto businesses will operate and the way they’ll be taxed in the future.
Conclusion:
Though the “VAT on Digital Services Law” might bring extra costs to the cryptocurrency users in the short period, however, in the long run, it may promote a more competitive and impartial environment. Since this law might ensure that taxation occurs on an equal basis between local and foreign DSPs, the law will push companies toward perfection of services and consumers will have more options available. However, a straightforward implication of increased fees and a possible shift to unregulated platforms must be watched carefully by both the users and regulators.
