BIR: Withholding tax on online sellers started July 15

The Bureau of Internal Revenue (BIR) on Tuesday announced that its plan to subject merchants or sellers in online platforms under the withholding tax system took effect on July 15, 2024.

This, after the extension to impose withholding tax to partner-merchants by their electronic marketplace operators under Revenue Circular No. 55-2024 expired on July 14, 2024.

“No more extensions will be given after the previous 90-day extension under RMC No. 55-2024,” the BIR Commissioner Romeo Lumagui Jr. said in a statement.

"Electronic Marketplace Operators will begin imposing Withholding Tax against their sellers/merchants starting July 15, 2024. We have already extended this by 90 days. No further extensions will be given," Lumagui said.

The previous extension was given in recognition of the compliance needed with the relative policies or requirements of other government agencies and to give the affected parties an opportunity to adjust with the provisions of Revenue Regulation (RR) No. 16-2023 prior to the actual imposition of the withholding tax.

Under RR No. 16-2023, one-half of the gross remittances of e-marketplace operations and digital financial services providers to the sellers or merchants for goods or services paid through their platform shall be subject to a 1% creditable withholding tax.

To reiterate the imposition of withholding tax to online merchants, the BIR issued RMC No. 79-2024.

"Withholding Tax is not a new tax, it's merely a system of taxation where taxes are collected at source, which will be credited against the total income tax liability of the sellers/merchants,” Lumagui said.

“The BIR aims to level the playing field between brick-and-mortar stores, which are regularly complying with their tax obligations, and online market places. Whether their business is operated online or through physical stores, sellers and merchants have to pay their taxes," the BIR chief said.

The withholding tax is the amount withheld by a business in payments of goods or services directly remitted to the government on behalf of suppliers or employees.

The BIR, however, said earlier the 1% withholding tax shall not be collected “if the annual total gross remittances to an online seller for the past taxable year has not exceeded P500,000” and “if the cumulative gross remittances to an online seller in a taxable year has not yet exceeded P500,000.”

The BIR defines “gross remittances” as the total amount received by an e-marketplace operator or digital financial services provider from a buyer or consumer for the goods and services sold by or paid to the seller or merchant through the platform of the e-marketplace operator.

Meanwhile, the RMC No. 79-2024 provided additional 90 days or until October 12, 2024 for digital financial services providers to complete their respective system adjustments to comply with the RR No. 16-2023.

The BIR said the extension was only for digital financial services providers.

The taxman had argued that with the proliferation of online sales transactions through the facilities of online platform providers, there was a need to take advantage of the opportunity to identify sellers of goods and services who are, therefore, obliged to declare their income resulting from these transactions for tax purposes. —KG, GMA Integrated News