Those who engage with selling online here in the Philippines and earn over P500,000 annually will have a new normal to live with as the Bureau of Internal Revenue (BIR) officially imposed the 1% withholding tax on online merchants that are found qualified, according to a Philippine News Agency (PNA) news article. Take note that BIR had been targeting online sellers previously and the Department of Finance (DOF) asserted that online sellers should be subject to the same tax obligations as traditional brick-and-mortar business owners for the sake of fairness.
In the year 2022, the digital economy of the Philippines contributed P2.08 trillion, equivalent to 9.4% of gross domestic product. Of this, e-commerce had the highest growth at 26.5%, with its share to the economy reaching 20% or P416.12 billion.
To put things in perspective, posted below is an excerpt from the PNA news article. Some parts in boldface…
The Bureau of Internal Revenue (BIR) has announced that online merchants with earnings amounting to more than PHP500,000 annually are now subject to a 1-percent withholding tax.
BIR Revenue Regulation 16-2023, issued last December 21, said the withholding tax will apply to one-half of the gross remittances by electronic marketplace operators and digital financial services providers to the sellers or merchants for the goods or services sold through their platform.
The BIR defines an electronic marketplace as a “digital service platform whose business is to connect online buyers/consumers with online sellers/merchants, facilitate and conclude the sales, process the payment of the products, goods or services through such digital platform, or facilitate the shipment of goods or provide logistic services and post-purchase support within such platforms.”
These include marketplaces for online shopping, food delivery platform, and platform for accommodation booking.
The BIR clarified, however, that the withholding tax will not be imposed if the annual total gross remittances to an online seller do not exceed PHP500,000.
The withholding tax shall not apply “if the cumulative gross remittances to an online seller/merchant in a taxable year has not yet exceeded PHP500,000,” the BIR said.
Sellers subject to a lower income tax rate pursuant to any existing law are also excluded.
Let me end this piece by asking you readers: What is your reaction to this recent development? Do you think the BIR made the right move? Do you think the imposition of the 1% withholding tax on online sellers (that made over P500,000 annually) will have a significant impact on e-commerce here in the Philippines? If you were planning to sell goods or services online, does the 1% withholding tax discourage you?
You may answer in the comments below. If you prefer to answer privately, you may do so by sending me a direct message online.
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