BIR subjects online sellers to 1% withholding tax

The Bureau of Internal Revenue (BIR) carried out its plan to subject partner merchants or sellers in online platforms to the withholding tax system.

As early as July, the BIR had floated the possibility of imposing a creditable withholding tax of 1% on one-half of the gross remittances of online platform providers to their partner sellers or merchants.

In November, BIR Commissioner Romeo Lumagui Jr. said the plan was in its final stages and would be implemented in December after a series of consultations with the public, online platforms, and other stakeholders.

Formalizing the imposition of a 1% withholding tax on the sales made by sellers on online platforms or digital marketplaces, the taxman issued, on December 21, 2023, Revenue Regulations No. 16-2023.

The RR No. 16-2023 was signed by Lumagui and Finance Secretary Benjamin Diokno.

Under the latest BIR regulation, 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.

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 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.

The RR No. 16-2023 shall take effect after 15 days following its publication in the Official Gazette or in a newspaper of general circulation.

To effectively collect the withholding tax from online sellers, Lumagui earlier said that operators of online platforms or marketplaces should “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.

The BIR chief had said that this was not a new tax, and that the BIR was only finding ways to collect taxes from digital transactions. — DVM, GMA Integrated News