E-commerce should comply with tax rules

The accelerating consumers' adaption of e-commerce was already unfolding even before coronavirus pandemic struck the country at unprecedented speed. As the saying goes, “change is the only constant in life,” therefore businesses should respond to this fast-moving consumer behavior to remain competitive in the endless opportunities that future holds.

The growing popularity of e-commerce has caused a deleterious impact on the sales of “brick and mortar” stores as the increasing penetration of high-speed internet also opened up the access through a variety of services, including online shopping.

In the Philippines, e-commerce remains at its developing stage but steadily growing at double-digits annually.

Based on a study by Google and Temasek, the Philippine internet economy saw a gross merchandise value of $7 billion last year. But it is still lower than its ASEAN peers like Malaysia with $11 billion, Vietnam’s $12 billion, Thailand’s $16 billion and the $40 billion of Indonesia.

But the rise in popularity towards online shopping has caught the eye of government authorities particularly the Bureau of Internal Revenue (BIR), the agency mandated to enforce all tax laws in the country.

For the BIR, the increasing number of interest-based transactions signalled an urgent need to work on approaches to further increase its collection efficiency of taxes—a compulsory financial charge on all individuals and corporate entities earning within the Philippines. 

Recently, a controversial circular was issued by the BIR requiring all online sellers to register their business activities with the tax authorities. This move by the government provoked the ire of many Filipinos.

But President Duterte’s chief economic manager immediately allayed fears that the registration of online shops with the BIR would only burden small entrepreneurs and result in additional costs.

Finance Secretary Carlos G. Dominguez III explained the BIR circular was just a reminder to businesses in the digital platform of their obligation with the tax agency, saying the government is not running after online sellers' past sales and unpaid taxes.

Dominguez also assured there are laws that protect small entrepreneurs against taxes. 

Citing the tax reform for acceleration and inclusion (TRAIN) law, he said that small entrepreneurs earning less than P250,000 annually enjoy zero income tax, while their sales below P3 million are exempted from value-added tax (VAT).

 “What we are asking right now is just for online sellers to register with the BIR,” Dominguez, noting there are tax privileges granted by TRAIN to help small business owners.

He clarified the notion that registering with the BIR would automatically require online vendors to pay taxes, saying there are “specific circumstances” before a taxpayer will be subjected to levies.

 “Self employed individuals are subject to the graduated rates in the Tax Code. For instance, a seller earning less than P250,000 will be subject to zero income tax. The rates for individuals have really gone down since TRAIN,” Dominguez said.

 “In fact, for VAT purposes, they will be exempted from VAT if their gross receipts do not exceed P3 million,” he added.

The finance chief also added that online sellers unpaid taxes for their unreported sales in the past will be waived once the

proposed general tax amnesty, now pending in Congress, is passed into law.

 “If they have any tax liabilities that are unpaid for prior periods, then they certainly can be covered by a general tax amnesty. That is why we are still asking Congress to pass the legislation on tax amnesty,” Dominguez said.

However, Finance Undersecretary Antonette C. Tionko said there is a need for the BIR to begin the initial phases for the government’s tighter tax collection program aimed at digital transactions amid rapid advances in information technology.

In its June 1 Revenue Memorandum Circular No. 60-2020, the BIR reminded all persons doing business and earning income through digital means to ensure that their businesses are registered, or their registrations are updated.

However, the RMC drew backlash from the public, saying the circular would just burden and not help small entrepreneurs who are trying to cope with an economy crippled by the pandemic.

But Tionko clarified that RMC No. 60-2020 is not intended to go after online merchants who have unreported sales or unpaid taxes.

She explained the latest RMC only contains basic registration guidelines for online business owners.

 “We just want to encourage those who are engaged in online businesses to register with the BIR,” said Tionko, who also heads the Department of Finance Revenue Operations Group.

This is not the first time the BIR initiated a campaign on digital transactions. In 2013, the tax agency had issued RMC No. 55-2013 reminding taxpayers that online businesses are not treated differently from brick-and-mortar businesses.

Seven-years after RMC No. 55-2013 issuance, Tionko said the government noticed the rapidly evolving ways of conducting business in the digital space, particularly during the community quarantine.

 “Online transactions have increased for quite some time now, especially during the community quarantine period. That’s

why we want to take this opportunity to remind them to register their businesses,” the DOF official said.

Tionko also assured that no penalty for late registration shall be imposed on those who will register or update their registration status on or before July 31 this year.

But she added that the BIR still encourages online businesses to declare and pay the corresponding taxes on past taxable transactions, without penalty, on or before July 31, 2020.

 “The BIR will issue an Operations Memorandum to this effect,” Tionko said. The DOF official also clarified that the RMC does not only target online sellers and merchants, noting it also covers the payment gateways, delivery channels, internet service providers and other online facilitators.