Amicus Curiae

As soon as the effects of COVID-19 were felt, people have craved for the same thing: a duplicate of the life before the global pandemic.

To satisfy this (with minimal physical contact as much as possible), people have resorted to electronic means to carry on their regular day-to-day activities. Hence, there was a rise in the number of online businesses, as opportunists have seen this as a means to create revenues while under quarantine. At the same time, the government was figuring out a way to efficiently collect taxes on these businesses, as it had to increase its revenues as well.

All businesses, including those conducted through electronic means, are generally required to be registered pursuant to Section 236 of the Tax Code, which states that every person subject to any internal revenue tax shall register with the appropriate Revenue District Officer on or before the commencement of business. Similar to other businesses, online merchants are required to pay the corresponding taxes due on their earned revenues.

Considering the increase in the number of online businesses, the Bureau of Internal Revenue (BIR) deemed it proper to reiterate that the requirements of the Tax Code also apply to online businesses. In June, the BIR issued Revenue Memorandum Circular (RMC) No. 60-2020 to emphasize that online merchants are required to register their businesses with the BIR.

In RMC No. 60-2020, it was specified that this requirement shall include “not only partner sellers/merchants, but also other stakeholders involved such as the payment gateways, delivery channels, internet service providers, and other facilitators.”

Moreover, online businesses were advised to comply with the requirements of the Tax Code on the following:

1. Issuance of registered Sales Invoice or Official Receipt for every sale of goods or services to clients/customers/buyers;

2. Keeping of registered Books of Accounts and other accounting records of business transactions;

3. Withholding of taxes, as applicable;

4. Filing of required tax returns; and,

5. Payment of correct taxes due on time.

To encourage online businesses to register, it was stated in RMC No. 60-2020 that all those who will register or update their registration status, and those who will voluntarily declare their past transactions and pay the pertinent taxes due thereon not later than July 31, 2020 will not be liable for the corresponding penalties. Further, the BIR released RMC No. 75-2020 extending the said deadline for an additional period of 30 days, or until Aug. 31.

As the issuance of the RMCs drew flak for being perceived to make it harder for those trying to adjust to the current circumstances, the BIR clarified that temporary online sellers will not be required to register their businesses. Hence, only those habitually engaged in the online selling business shall be covered by the RMCs. Moreover, even if registered, the BIR reminded online merchants that individuals who are earning an annual net income of less than P250,000 will not be liable for the corresponding taxes, pursuant to Section 24 of the Tax Code.

Lastly, the BIR and the Department of Finance (DoF) added that registration with the relevant agencies may allow the merchants to avail of incentives provided by the government, such as tax breaks and loans.

The taxation of online businesses is not a new issue for the BIR, as even before COVID-19, the number of businesses conducted through electronic platforms has been growing and its market, continuously expanding. In fact, in RMC No. 55-2013, it was clearly stated that “the existing laws and revenue issuances on the tax treatment of purchases (local or imported) and sale (local or international) of goods (tangible or intangible) or services shall be equally applied with no distinction whether or not the marketing channel is the internet/digital media or the typical and customary physical medium.”

To study this further, the Department of Finance has been exploring the taxation of the digital economy. This is because it cannot be denied that there are notable differences between businesses conducted online and those conducted physically. Consequently, the rules implemented to regulate the latter may not be squarely applicable to regulate the former. Further, considering the availability of numerous electronic platforms to start a business and the ease in reducing internet footprint, monitoring may also pose an issue. Considering the foregoing, it may be difficult for the BIR to impose the requirements of the Tax Code on online businesses. Although the BIR has expressed plans to transform digitally, the transition is taking some time. Also, there is a lingering question on whether the existing laws and regulations are enough to put online businesses and physical businesses on equal footing. However, bills which are currently pending with the Congress, may finally address these lapses.

With the rising number of positive cases everyday, the number of online businesses will continue to rise. Hence, the BIR might have to adapt, as we all do.

The views and opinions expressed in this article are those of the author. This article is for general informational and educational purposes, and not offered as, and does not constitute, legal advice or legal opinion.


Jo-Anne Monique D. Coloquio is an Associate of the Labor and Employment Department of the Angara Abello Concepcion Regala & Cruz Law Offices (ACCRALAW).

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