BIR targets 1% online seller withholding tax in December

Just in time for the Christmas shopping rush, the Bureau of Internal Revenue (BIR) is targeting to impose its plan to collect a withholding tax of 1% from the partner merchants of online platforms by December.

At a press briefing organized by the Philippine Information Agency (PIA), BIR Commissioner Romeo Lumagui Jr. said the taxman was finalizing the rules on the proposal to charge a creditable withholding tax of 1% on one-half of the gross remittances of online platform providers to their partner sellers or merchants after it collected comments from the public, online platforms, and other stakeholders.

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 stakeholders, online platforms, payment channels have already… We have collated their comments, and we will issue the revised regulations that incorporate their comments,” Lumagui said.

“Our target is, hopefully, we can implement it by December… or at the latest January of 2024,” the BIR chief said.

To effectively collect the withholding tax from online sellers, Lumagui told operators of online platforms or marketplaces to “make sure they (partner-merchants) are registered with the BIR” before they accredit merchants in their platforms.

The BIR 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.

Lumagui also reiterated the taxman’s stance, saying that taxing online merchants was aimed at leveling the playing field between traditional brick-and-mortar retailers and those selling on digital platforms or marketplaces.

He said that this was not a new tax, and that the BIR was only finding ways to collect taxes from digital transactions.

“Hopefully, we will get an estimate of the entire universe of online transactions,” Lumagui said.

The BIR chief also said that sellers earning less than P250,000 annually should not worry about the imposition of a 1% withholding tax on their transactions.

Under the Tax Reform for Acceleration and Inclusion (TRAIN) law, an individual earning less than P250,000 a year is exempted from withholding tax.

The BIR had proposed to impose a creditable withholding tax of 1% on one-half of the gross remittances of online platform providers to their partner sellers or merchants early this year.

“We may start in the fourth quarter… We are aiming for this year, so it would be a full implementation next year,” Lumagui said at the time.

Lumagui added that discussions with concerned stakeholders were ongoing as he said all inputs are being considered.

“All private sectors are onboard, so they'll understand,” he said.

The BIR chief said that collecting withholding tax from those selling on online platforms was similar to how malls collect it from their tenants.

“Malls require [tax] registration of their lessees, so in the same, why can’t we regulate platforms? They should require everyone conducting business with them to register,” Lumagui said.

The United Filipino Consumers and Commuters (UFCC), however, urged the BIR to reconsider its plan, describing it as a “heavy blow” to “ordinary Filipino people who will suffer the effects of the new tax."

“At a time when the country has yet to recover from the crippling effects of the COVID-19 pandemic fully, introducing new taxes that will ultimately hurt the poor is the last thing the country needs right now. Naghihirap ang taumbayan, huwag na sanang dagdagan pa ng pamahalaan (Filipinos are already experiencing hardships, I hope the government will not add to their burdens.),” UFCC President RJ Javellana said in May.

“We are concerned that the plan to have the new 1% withholding tax will be the beginning of more taxes to be imposed upon the already suffering public. It has already been reported that the Department of Finance (DOF) plans to introduce new and higher taxes in 2024,” he added.

The group also called on online selling and services platform providers to be the voice of their partner sellers and merchants in their representation to the BIR. — DVM, GMA Integrated News