The Department of Finance (DOF) remains firm on its decision to require some 900,000 online sellers to register with the Bureau of Internal Revenue (BIR) and pay taxes as a way to fund the fight against the pandemic. The DOF says it will first include online sellers in the formal economy before being compelled to pay taxes, aiming to “encourage” such businesses to register, especially since online transactions have increased during the quarantine period

A month ago, the department reviewed a bill filed by Albay Representative Joey Salceda that imposes taxes on video and music streaming, online shopping sites and social media advertisements. According to DOF, the country’s digital economy can be absorbed into the corporate tax system as it becomes the new trend as accelerated by COVID-19, citing Singapore and Malaysia as examples of countries that have adapted digital services in their tax bases.

As early as 2013, online sellers had been already subject for taxation when BIR Commissioner Kim Henares issued RMC 55-2013, requiring registration and tax payments from “online business transactions, including online retailing through virtual shopping malls, online marketplaces, webstores and similar websites” or “online stores.”

Several senators, however, see this as only targeting small entrepreneurs instead of going after companies like Philippine offshore gaming operators (POGOs), which owe the government some P70 billion worth of tax. Senate Minority Leader Franklin Drilon even has a higher estimate of POGO-related taxes amounting to P200 billion, saying that the DOF’s pushed P140 billion stimulus package can already be covered by it if collected. Meanwhile, Senate Majority Leader Juan Miguel Zubiri believes that BIR’s mandate is unnecessary, explaining that taxing small businesses is heartless and not the way to generate more revenue. Senate economic affairs committee vice chair Senator Sherwin Gatchalian says that the imposition of registration and taxes on online sellers are costlier.

“The administrative costs in the registration, auditing and monitoring of [online sellers] could be more expensive than the taxes that the government would be able to collect from them,” says Senator Sherwin Gatchalian, noting that this decision made by the BIR is the height of insensitivity as its timing on new taxation only hurts small entrepreneurs. 

The new taxation may also expose more people to the virus, given that 99 percent of business owners in the country are from the micro, small and medium enterprises (MSME) sector as well as cause major logistical problems. Gatchalian says that if the DOF stands firm on its decision then the registration has to be purely digital so as not to compromise the health of entrepreneurs. Vice President Leni Robredo also urged the BIR to give online sellers financial assistance instead of requiring tax. Robredo cites Republic Act 9178 or the Barangay Micro Business Enterprise Law which aims to give MSMEs benefits, including tax exemption. 

Subscribe to our weekly newsletter to receive all the tools and solutions entrepreneurs need to stay updated on the latest news in the industry