BIR slaps 1% withholding tax on online merchants

MANILA, Philippines — The Bureau of Internal Revenue (BIR) has officially imposed a one percent withholding tax on online platform providers as part of government efforts to tap digital transactions for economic growth.

In its latest revenue regulation, the BIR is imposing a withholding tax on gross remittances made by electronic marketplace operators and digital financial service providers to sellers or merchants for goods and services sold or paid through the former’s platform and facility.

In April this year, the BIR had sought comments from stakeholders on the new revenue measure.

It took the agency more than six months to come up with the final draft in October before issuing the regulation this December.

A 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 will be remitted to the BIR.

The BIR will impose a 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 have not exceeded P500,000.

Also excluded are online sellers with cumulative gross remittances to an online merchant in a taxable year that have not yet exceeded P500,000, as well as those cooperatives duly registered with the BIR with a valid certificate of tax exemption.

Gross remittance is the total amount received by an e-marketplace operator or digital financial services provider from a buyer.

According to BIR, e-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 on e-marketplace operators.

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 was made therein.

Data showed that there are roughly two million entities involved in online selling as of last year.