Understanding the impacts of the Internet Transactions Act on Filipino entrepreneurs

Published March 9, 2021, 7:54 AM

by MB Technews

Micro, small, and medium enterprises or MSMEs account for 99.5% of all registered businesses in the Philippines, employing almost 62% of the workforce. They also account for 25% of the country’s total exports revenue, and comprise 60% of all Philippine exporters. MSMEs, in particular e-commerce players, have stepped up during the pandemic, providing services and necessities demanded by the lingering health crisis. 

However, along with the silver lining offered by the pandemic are multiple challenges for e-commerce businesses. Existing constraints — like slow Internet connectivity, scarce infrastructure, lack of digital tech know-how, and the rise of fraudulent online transactions — called for another law that will enhance MSMEs’ performance, sustainability, resilience, and protection. Such is the vision laid out in the creation of the Internet Transactions Act (ITA).

To further shed light on the ITA and its impacts on digital vendors, leading social enterprise Bayan Academy proposed a list of recommendations during its recently hosted symposium among a community of online merchants, start-up players, and digital platform providers. The insightful event also helped express the viewpoints of online merchants on the remedial measures as the enactment of the ITA is set to impact local MSMEs and their business operations. 

Supporting the ‘backbone of economy’

Now on final reading, Senate Bill No. 1591 or ITA seeks to create an environment founded on trust among consumers and merchants, as a means to increase the number of eCommerce participants, and ultimately achieve sustainable growth.

In fact, the World Bank study “Philippines Digital Economy Report 2020” characterized the Philippine eCommerce industry as “one with great potential – albeit unrealized – which is ripe for more growth and development.” 

The enactment of ITA will pave the way for the establishment of the E-Commerce Bureau under the Department of Trade and Industry (DTI), an entity that acts as a “one-stop shop” that will carry out the provisions of the bill and handle, monitor, and serve as “arbitrator” between involved e-commerce stakeholders. 

Industries under the scope of ITA include internet retail of consumer goods, online travel services (covering purchase of flights, hotel accommodations, and vacation rental spaces), digital media providers (advertising, gaming, music subscription, and video on demand), ride-hailing services (for personal transport, delivery of food and merchandise), and financial services through digital online platforms (online payments, remittances, online lending, online investment, and online insurance services).   

While the objectives of the bill to boost the growth of e-commerce in the country by creating an environment that is built on trust have been lauded, concerns on certain provisions were raised as merchants and online platform providers believe these may hamper the bill’s very same goals. 

One such problem is the Joint and Solidarity Liability clause, which holds eCommerce platforms jointly liable with merchants selling products that do not comply with intellectual property, consumer protection, and other laws.

While this provision intends to guard consumers’ rights and guarantee fool-proof transactions especially those done outside the Philippines, online vendors also called for a more flexible approach in regulating eCommerce.

Acknowledging as well that unscrupulous merchants indeed abound in the digital space, there are also “ghost buyers” preying on sellers. Thus, safety nets and stiffer penalties against individuals committing bogus transactions using fake identity and fraudulent receipts/digital proofs of purchases should also be put in place, according to the online merchants. 

While the bill rightfully focuses on consumer protection by addressing security concerns and creating rules and regulations that should govern eCommerce, legitimate merchants are wary that “a one size fits all” regulation may discourage seller participation because of the liability clause and burdensome regulatory and registration compliance features. 

“It’s not just protecting the consumers, the focal concern should be both about curbing scams and encouraging more and more MSMEs to make that digital leap toward eCommerce,” says John Xavier Francia, Program Director of Bayan Academy and Executive Director of the Social Economy and Action Research Foundation (SEARCH).         

Registration woes 

E-commerce is considered as a safe and best avenue for merchants who wish to do business at a minimal set-up and operating costs. However, once the ITA is implemented, registration requirements for one’s business online will become a lot costly and more tedious, especially for newbie sellers short of funds, experience, and resources.

Under ITA, eCommerce applicants must be duly a Filipino individual, a juridical entity, a cooperative or corporation that is duly registered and licensed to transact in the Philippines. They are also required to publish their names, registration documents (including but not limited to business permits, certificate of registration, barangay clearance), geographic address (physical store presence), and merchant’s personal details (landline/mobile contact numbers).

While they all see the primal importance of the new measures to the survival and protection of eCommerce transactions, merchants believe that policy-makers can still improve on the registration policies based on their current situation and experiences. 

Members of the MSME sector have expressed concerns regarding the requirement of making publicly available their licenses, permits, and other registration documents. In a roundtable discussion involving MSMEs representatives held on November 10, 2020, it was raised that the ease of manipulating images and digital documents constitutes a security and data privacy concerns. Put simply, the ease of access to these crucial requirements may be taken advantage of by people seeking to skirt or forgo the requirements of registration, by editing the posted documents of legitimate businesses, and representing that they are legitimately registered. 

As per ITA, online merchants who fail to register either as a sole proprietor, one-person corporation, partnership, corporation, or cooperative, shall be punished with a fine equivalent to 100% of the amount of the digital goods offered or sold based on the market price as determined by the Bureau, including confiscation of the digital products as advertised, and forfeiture of license.

Two-way solutions

After a thorough study and consideration of both online seller-consumer viewpoints, Bayan Academy has listed down the following recommendations as a way to inject improvements on the ITA provisions. 

One proposal is to equip the E-Commerce Bureau “rule-making” powers or to be explicitly tasked with formulating the rules and regulations that will govern eCommerce and eCommerce transactions. It is also recommended that the bureau be given wide latitude and discretion to amend these rules in order to easily adapt to any changes in the industry, with the caveat that public consultation and hearing with stakeholders, including and especially regarding the concerns of smaller and potential businesses, on these proposed rules be required. 

It is also recommended that the rules and laws in place recognize both the unique nature of the eCommerce industry as well as the diversity of the players and activities which comprise the eCommerce space. With such recognition necessarily comes a framework that is characterized by flexibility. 

In sum, it is recommended that the restrictions and impositions laid down by the Senate Bill be further specified and classified in order to account for the varied players in the industry, based on classifications which recognize and delineate the substantial distinction between each classification or category, in order to  more specifically address the differing needs thereof. 

“At the end of the day, it’s all about being informed properly so that MSMEs can prepare ahead of the implementation of the ITA, so as to accommodate everyone involved fairly into the system. We hope that they could revisit the provisions and consider our suggestions. Of course, all stakeholders, which include government, consumers, merchants, and online platform providers, should be properly represented and considered in the discussions,” Francia concludes.