taxes

[New School] When should online businesses be taxed?

Boses Tomasino
[New School] When should online businesses be taxed?
'One must also take into consideration that there are businesses which prefer physical stores over online platforms to further expand their enterprise. This puts them at a disadvantage.'

Online business establishments became common during the pandemic, especially among laid-off workers. This situation raised concerns about tax imposition.

Taxes are to be paid according to citizens’ economic capability, whether their income source is online or otherwise, to provide funding for the government. This redistributes wealth and secures funding for public programs and infrastructures which are beneficial during the pandemic. 

Taxes on online businesses should be collected despite the current situation we are in. Sellers on e-commerce platforms provide consumers with alternatives and convenience, while digital content creators provide entertainment and eased anxiety.

A representative from Malacanang has also clarified that the tax cap for online sellers would be collected based on their annual income. Under the Tax Reform for Acceleration and Inclusion (TRAIN) Act which amended the Tax Code for all businesses, even for e-commerce, those who annually earn less than P250,000 would be exempted from paying income taxes.

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One must also take into consideration that there are businesses which prefer physical stores over online platforms to further expand their enterprise. This puts them at a disadvantage compared to those who do. These businesses continue to be taxed despite COVID-19 still being rampant around the Philippines, while those who use online platforms are continuously getting preferred by consumers, which puts the former at an even greater disadvantage since they are losing their market share as well. 

Furthermore, Revenue Memorandum Circular No. 60-2020 reminds citizens that income from transactions conducted through digital means, either by the business, its affiliates, or its employees, are subject to taxation. Referring to the previous point, online businesses are starting to grow and traditional businesses are slowly approaching obsolescence. If online businesses will not be taxed as they continue to take over the market, then there will be a significant drop in the main source of tax revenue, which mainly comes from the income of traditional businesses. This will decrease the financial liberty of the country, hindering its development. This is detrimental to the Philippine economy, wherein according to the Philippine National Statistics (2019), 88.77% of the enterprises in the country are micro businesses. 

E-commerce can be a boon to taxation, as it can theoretically enhance the collection efficiency of the Bureau of Internal Revenue (BIR). One might argue that electronic transactions might be more difficult to track as opposed to traditional ones, but these e-commerce platforms used for many businesses constantly change, which is why taxes must be imposed.

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One part of that change involves the selling of goods to foreign businesses outside the country. The Value Added Tax (VAT), under the Comprehensive Tax Reform Package or RA 8424 — the Tax Reform Act of 1997, is applicable to any person who sells goods or services within the course of their trades or business. It is also applicable to imported goods. However, some sales, such as export sales, would be subject to a zero percent rate. This would be of special interest to Filipino entrepreneurs as this may give rise to our capability to increase our recognition outside the Philippines by selling goods to foreigners. 

In line with this, Boses Tomasino recommends the government to strictly impose a mandatory registration of online businesses. The implementation of online business registration would facilitate the recording of new online businesses and the implementation of the tax scheme itself. Its implementation of online business registration will not only aid in regulating businesses but also secure a steady source of tax revenue for the government. Additionally, its implementation may also facilitate the future execution of future laws and regulations.

However, these benefits may only be possible if the government mandates that online business registration be mandatory. A stricter standard would mean a lower possibility of tax dues being uncollected. Although mandating online business registration may cause inconveniences, its execution will result in the government having a constant flow of much-needed tax revenue. This would help spur economic growth, which in turn has a ripple effect on the country’s economy. On the other hand, a database on existing online businesses will not only help keep track of the businesses themselves but also facilitate the execution of future laws and regulations relating to online businesses. 

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Boses Tomasino also recommends that businesses present their registration forms, any government-issued IDs, or other business permits and documents before establishing an online store in all online selling platforms. This will ensure that these businesses are legitimate and therefore permitted to make transactions with buyers. Although some platforms are already administering these measures, firmer impositions may further aid in the collection of taxes as online sellers would be made aware of their responsibilities as tax-paying citizens and the government would monitor these businesses with ease. 

The COVID-19 pandemic has greatly impacted the Philippines, resulting in a dwindling economy. It is indeed difficult for businesses to operate due to the tight protocols administered on the public; however, implementing clear and definite taxation laws upon online sellers may aid in lifting the economic macrocosm. – Rappler.com

Boses Tomasino is composed of Glenn Alarcon, Jr., Almira Angelica Ang, Josh Gabriel Borras, Bienvenido Jesus Castro III, Gillian Galian, Krissanela Ishina Labit, Akira Karel Panahon, Philomena Anne Therese Punzalan, and Francis Miguell Sta. Rosa.

They are from the University of Santo Tomas-Senior High School, and are currently Grade 12 Accountancy and Business Management students. Boses Tomasino was formed in compliance with one of their subjects.