BIR finalizes 1 percent tax for online sellers

MANILA, Philippines — The Bureau of Internal Revenue (BIR) is in the final phase of its plan to impose a one percent withholding tax on online platform providers that people use to sell goods and services amid the continued surge in digital transactions.

Based on the final draft of the revenue regulation posted on its website over the weekend, the BIR will impose a creditable withholding tax on income payments made by electronic marketplace operators to online merchants.

The BIR sought comments from stakeholders on the new revenue measure last April.

Withholding tax is a kind of tax on the salary earned by a certain employee.

Based on the current framework, employers are required to deduct a certain percentage of their employee’s salary which, in turn, is remitted to the BIR.

As online sales transactions continue to increase, further expedited by the pandemic, the BIR has been looking at ways to tax online sellers.

The final draft of the revenue regulation, which is subject to final comments until Oct. 27, imposes a creditable withholding tax of one percent on one-half of the gross remittances of the online platform providers to the sellers of the goods and services.

The withholding tax imposed, however, will not apply if the annual total gross remittances to an online merchant for the past taxable year has not exceeded P250,000.

Also excluded are online sellers with cumulative gross remittances to an online merchant in a taxable year that have not yet exceeded P250,000, as well as those cooperatives duly registered with the BIR with a valid certificate of tax exemption.

According to BIR, electronic marketplace refers to a digital platform whose business is to connect online consumers with online merchants, facilitate and conclude the sales, process the payment of the products, goods or services through the platform.

It also facilitates the shipment of goods or provides logistics services and post-purchase support within such platforms, and otherwise retains oversight over the consummation of the transaction.

This includes the marketplace for online shopping, food delivery platforms, platforms for booking of resort, hotel, motel, inn, house, condominium unit, bed space, room for rent, and other similar lodging accommodations, and other service or product marketplaces.

The BIR said the withholding tax imposed shall be in addition to the existing withholding tax obligations being imposed to the e-marketplace operators.

These are withholding taxes on payment to transportation contractors for the carriage of goods and merchandise and commissions on the goods and services actually sold, aside from the consideration for the use of the digital platform.

“The e-marketplace operator shall not allow the sale of goods or services in the e-marketplace by online sellers who are not duly registered with the BIR, whether or not the online sellers whose remittances do not exceed P250,000 or are members of a duly registered cooperative,” the BIR said.

Since tax involved and being withheld is income tax, the burden of the tax is upon the seller although the mode of payment of the tax is through withholding by the buyer, or by the e-marketplace operator, in case the payment for the sale of goods or services were made therein.