Online sellers to pay 1% withholding tax by Q4, BIR says

BIR aims to "level the playing field" between online and offline businesses.

Online sellers who use platforms such as Lazada and Shopee will have to pay a creditable withholding tax of 1% by the fourth quarter of 2023, according to the Bureau of Internal Revenue (BIR).

The BIR said the withholding tax is not a new tax, but a way to enforce existing tax laws and ensure proper tax collection from online merchants.

The withholding tax will be applied to half of the total amount being paid by online platform providers to their partner sellers or merchants.

The BIR explained that the purpose of imposing taxes on online sellers is to level the playing field between traditional brick-and-mortar retailers and those selling on digital platforms or marketplaces.

“It’s a matter of fairness because if you buy from a regular store, you have to pay taxes. But here [in online business], you don’t have to pay, and that’s unfair,” Finance Secretary Benjamin E. Diokno said in a statement.

Diokno added that a good tax system should be fair and that individuals should willingly fulfill their tax obligations.

The BIR is amending Revenue Regulations No. 2-98, which currently does not cover income payments by online platform providers.

Under the draft rules, online platforms that do not require business registration from sellers will only collect withholding tax on single transactions of goods or services worth P10,000 and if the same buyer and seller have engaged in at least six transactions, regardless of the amount per transaction, in the previous or current year.

The BIR said it is working with online platforms to address their concerns on the implementation of the creditable withholding tax. It is aiming to fully implement this by next year.

BIR Commissioner Romeo D. Lumagui, Jr. said that the collection of the said tax will begin in the fourth quarter of 2023, citing this year as the time of the initial rollout, followed by full implementation in 2024.

The BIR, which contributes about two-thirds of the government’s revenue, has been tasked to collect P2.599 trillion in 2023.

Lumagui said the BIR’s increased efforts in enforcing tax compliance have resulted in higher revenue collection from January to May.

The digital economy contributed PHP 2.08 trillion, equivalent to 9.4% of GDP, in 2023. Of this, e-commerce had the highest growth at 26.5%, with its share of the economy reaching 20% or PHP 416.12 billion.

Image: Nick Morrison from Unsplash

Bryan is a geek at heart and a tech enthusiast by choice. He has a strong background in corporate communications, marketing services, and customer relations having worked in the telecommunications and banking sectors for over two decades. In his spare time, he enjoys watching clips on YouTube and binge watching shows on Netflix.

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