By Beatriz Marie D. Cruz, Reporter
THE BUREAU of Internal Revenue (BIR) on Monday started collecting a withholding tax on online platforms and sellers.
At the same time, the BIR extended the transition period for digital financial service providers by another 90 days to mid-October.
BIR Commissioner Romeo D. Lumagui, Jr. said in a statement that electronic marketplace operators started imposing the withholding tax against sellers and merchants on July 15.
“We have already extended this by 90 days. No further extensions will be given,” he said.
A withholding tax is not a new form of tax, but an advance payment collected from the total income tax liability of an online seller.
Under Revenue Regulations (RR) No. 16-2023, a withholding tax of 1% will be imposed on one-half of the gross remittances by e-marketplace operators and digital financial service providers to the sellers or merchants for the goods and services paid or sold through their platforms or facilities.
In April, the BIR extended the transition period for another 90 days, or until July 14, in response to the request of the private sector.
This regulation covers marketplaces for online shopping, food delivery platforms, platforms to book lodging accommodations, and other similar online service or product marketplaces.
“The BIR aims to level the playing field between brick-and-mortar stores, which are regularly complying with their tax obligations, and online marketplaces,” Mr. Lumagui said.
“Whether their business is operated online or through physical stores, sellers and merchants have to pay their taxes.”
However, the BIR clarified that the tax will not be imposed if the annual total gross remittances to an online seller for the past taxable year has not exceeded P500,000; if the cumulative gross remittances to an online seller in a taxable year has not yet exceeded P500,000 or if the seller is duly exempt from or subject to a lower income tax rate pursuant to any existing law or treaty.
Eleanor L. Roque, tax principal of P&A Grant Thornton, said the BIR’s move would help capture the appropriate taxes from the online marketplace.
“If there is a discrepancy in the gross transactions and amount of withholding taxes, the online sellers will be asked to explain or reconcile the difference. This is the same process when the BIR audits any taxpayer,” she said in a Viber message.
Meanwhile, the BIR issued a circular that extended the transition period for digital financial service providers to comply with the withholding tax by another 90 days or until Oct. 12.
The transition period was supposed to have ended on July 14.
BIR said the extension was meant “to provide additional time to the digital financial services providers to finally complete their respective system adjustments for compliance with the requirements of Revenue Regulations 16-2023.”
The digital economy’s annual contribution to the country’s economic output fell as its growth slowed down in 2023.
In 2023, the digital economy’s share to the country’s gross domestic product (GDP) went down to 8.4% from 8.6% in 2022. This was its lowest share to GDP since 2018.
In terms of gross value added, the digital sector grew by 7.7% to P2.05 trillion last year from the P1.9 trillion recorded in 2022.
The country’s digital economy is projected to reach up to $150 billion by 2030, according to a 2023 report by Google, Temasek Holdings and Bain & Company.