[Ask the Tax Whiz] Are online sellers/merchants required to pay taxes?

Mon Abrea

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The Philippine Tax Whiz discusses Revenue Regulations No. 16-2023 on the imposition of 1% withholding tax on gross remittances made by electronic marketplace operators and digital financial services providers to sellers/merchants
I heard that the Bureau of Internal Revenue (BIR) has issued Revenue Regulations pertaining to online sellers. Is this the new digital tax law?

The BIR has issued RR 16-2023 to provide for the rules on the tax for gross remittances by online sellers or merchants. Specifically, there is now a withholding tax of 1% imposed on half of the gross remittances by electronic-marketplace operators and Digital Service Providers to the online merchants for the goods or services sold through their facility. 

This is not yet the digital tax. This withholding tax is in effect an advanced collection of the income tax due from the sellers/merchants. Upon filing and payment of income tax, the seller/merchant will apply the withheld amount as tax credit or deduction from its tax due.

Gross remittance, for purposes of this withholding tax, refers to the total amount received by an e-marketplace operator or digital financial service provider from a buyer/consumer through their platform/facility. However, gross remittances does not include:

  1. Sales returns and discounts; separately billed delivery or shipping fee; and value added tax, collected by the e-marketplace operator from the online consumer and subsequently remitted to the online seller; and 
  2. Consideration for the use of the e-marketplace and/or digital financial services platform.

In this case, the e-marketplace operator or digital service provider is the one who is required to deduct and withhold tax on the gross remittances in case the payment of sales of goods and services is made in their online platform before sending the remittances to the sellers/merchants.

I have a sole-proprietorship business which involves online selling. Will I be subject to the 1% withholding tax? What if I apply for BMBE certification?

Yes, but only on your online sales transactions since the e-marketplace operators or digital service providers are mandated to withhold 1% on ½ of their gross remittances to you. However, you are exempt from the withholding tax under the following circumstances:

  1. If the  annual total gross remittances to you (an online merchant) for the past taxable year has not exceeded P500,000.00; or
  2. If the cumulative gross remittance to you (an online merchant) in a taxable year has not exceeded P500,000.00; or
  3. If the seller/merchant is duly exempt from or subject to a lower income tax rate pursuant to any existing law or treaty (e.g., income tax exemption under the Barangay Micro Business Enterprise or BMBE law). Provided that, the concerned seller/merchant is able to secure the necessary certification, clearance,ruling, or any other document serving as proof of entitlement to the said exemption or lower income tax rate. The said proof of entitlement shall be submitted by the seller/merchant to the e-marketplace operator or digital financial services provider concerned.

As mentioned above, if you have applied and secured a BMBE certification, then you will be exempted from the withholding tax. 

I am an ordinary consumer who is using an online platform or an e-wallet. If I transfer cash to my nephews just because I want to, will I be subject to 1% withholding tax?

No. Ordinary remittance other than from sales or income payment will not be subject to withholding tax. The regulation refers to gross remittances from e-marketplace operators or digital service providers to their sellers/merchants. And the account used should be a BIR registered trade name of the seller or merchant, not a personal account. 

As an online seller/merchant, what are the things that I need to take into consideration in complying with the Bureau of Internal Revenue?

In compliance with Section 236 of the NIRC of 1997, you have to register your business with the BIR.

As provided under RR 16-2023, e-marketplace operators shall require from their respective sellers/merchants the submission of their Certificate of Registration (COR) or BIR form 2303, and include the same as part of e-marketplace operators’ minimum seller/merchant accreditation requirements.

Aside from being registered with the BIR, it is imperative also for businesses to maintain a books of accounts and keep records, file and pay taxes on time, issuance of invoices receipts, and to comply with the other requirements that are applicable to your business.

Also, a merchant/seller must know that any transactions made within the Philippines are subject to Income Tax and Value Added Tax, unless otherwise exempted.

In a recent interview with the Philippine Tax Whiz, he mentioned that RR No. 16-2023 is simply expanding the scope of the withholding tax system and there’s a need to ensure that our regulators, the BIR, are listening and will be coming up with new measures to at least ease the burden, especially the small ones. Watch the clip here. #AskTheTaxWhiz –

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