MANILA, Philippines — When most establishments were shuttered during the quarantine, Mhonick Dizon’s business was booming.
Her online grocery store selling toiletries and canned goods expanded to offer fresh fruits and vegetables to loyal customers when Metro Manila was put on lockdown and everyone was encouraged to stay home. The result was additional income for her and her family, enough for them to cope with living expenses while most of them are out of jobs due to the quarantine.
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“We earned P20,000 more per month since the lockdown. People do not want to go out, so we had many orders,” Dizon, 28, from Tondo said in an online exchange.
E-commerce is getting a fresh and unlikely wind from the government’s hesitancy to lift movement restrictions altogether, but the boom has caught the government's eye. Now, taxmen want a share of the growing pie as the Duterte administration scrambles for cash to fund the rising costs of its pandemic response.
Under Revenue Memorandum Circular 60-2020 dated June 1, the Bureau of Internal Revenue (BIR) ordered people and firms earning income “through the use of any electronic platforms and media, and other digital means” to register and pay taxes not later than July 31, or risk paying penalties. The order applies even on “past transactions,” meaning sellers would need to report and pay the corresponding tax supposedly charged on their previous sales.
To be fair, that online retailing is charged with taxes is not new. In 2013, BIR issued RMC 55-2013 reminding taxpayers that sales online are levied, but it is only this latest circular that gave a deadline to settle these taxes and the only one that warned surcharges may apply.
Eleanor Roque, tax advisory head at P&A Grant Thornton, an auditing firm, said the latest order is a way for tax officials to “adapt” to life after stringent lockdowns where brick and mortar firms remain closed or forced to operate only partially due to the virus.
“Because of the pandemic, most taxpayers have shifted to online sales. Their income, taken together is becoming significant. But because they are online, it will be difficult for the BIR to tax them,” Roque said in a Viber message on Thursday.
Big e-commerce websites such as Lazada and Shopee are likely tax compliant so the order may have little effect on these companies. But sellers on their platforms would likely take the brunt of the levy. “It’s the small players who will have difficulty complying,” Roque said.
No more ‘PMs’
Dizon said she is ready to comply with new tax rules, but as a work-around, she added she would limit social media posts of her products so that customers may still negotiate prices if they want to. "Sometimes, they want the delivery fee waived, and we can do that now. But with taxes, I'm not sure we can," she said.
Taxing online sellers mean prices would need to be specified and made public, a matter already ordered by the trade department a week ago when it warned sellers that negotiating with customers through personal messages in social media is prohibited.
Young consumers and small business sellers are driving the Philippines’ e-commerce market poised to value $12 billion by 2025 from just $500 million in 2015, according to last year’s report by Google, Bain & Company. The projections were made before the pandemic struck, so a spike in online transactions during the outbreak was not factored in.
For the government, new regulations were all meant to catch much-needed revenues generated from economic activity online. BIR collections slumped 20.5% year-on-year four months into April after a 61.6% plunge that month as the lockdowns, particularly in the main economic island of Luzon, crippled consumer demand.
Unlike online sellers, taxes are unlikely to deter customers from purchasing online. "Tax is not very salient to consumers. Convenience is much more important in their purchasing decision," said Gerfer Mindoro, senior research manager at KMC Savills brokerage.
BIR raises 80% of tax revenues every year, so its weak collection performance has a devastating impact on state finances. In total, economic managers are resigned to a 16.7% drop in revenues this year, and have resorted to multilateral loans for coronavirus response, but that does not mean they would give up collecting without a fight.
Tax mapping goes online
But whether or not BIR can raise significant cash from online transactions is unclear. Globally, taxmen are facing difficulty monitoring online activities to collect revenues. For Kim Henares, BIR commissioner during the previous administration, this simply means actual visits to establishments for tax checks will have to go online.
“If they need auditors to surf the web the whole day to catch erring taxpayers, then they can do that,” Henares said in a phone interview.
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