Amicus Curiae

MINDANDI-FREEPIK

The COVID-19 pandemic accelerated the adoption of technological innovations in purchasers’ spending. Consumers today prefer to purchase their basic goods and commodities through online transactions instead of in-store purchases. This shift has resulted in the age of electronic marketplaces (e-marketplaces). A study by GlobalData shows that the e-commerce sector in the Philippines is set to grow by 19.6% in 2024. Consequently, more business owners are recognizing the potential of online sales and have opted to sell their goods through e-marketplaces.

Acknowledging this shift, the Bureau of Internal Revenue (BIR) has taken measures to collect taxes from these e-marketplaces.

On Dec. 27, 2023, the BIR issued Revenue Regulation No. 16-2023 (RR No. 16-2023), which requires the imposition of withholding tax on the gross remittance made by e-marketplace operators to their sellers. Recently, RMC No. 079-2024 was issued stating that electronic market operators shall impose withholding tax on sellers/merchants pursuant to RR No. 16-2023 beginning July 15, 2024.

RR No. 16-2023 imposes a creditable withholding tax on the gross remittance of e-marketplace operators to sellers for goods sold through their online platform or facility.

“Gross Remittance” is defined as the total amount received by an e-marketplace operator from a buyer for the goods paid to the seller through the platform of the e-marketplace operator. It excludes the following: (i) sales returns and discounts; separately billed delivery fee; and value-added tax collected by the e-marketplace operator from the consumer and subsequently remitted to the seller; and (ii) consideration for the use of the electronic marketplace.

Payments made to e-marketplace operators that are included in the price but earmarked for third parties, such as delivery fees or insurance, shall also be excluded from gross remittance. It is not income on the part of the seller since there is no gain. This is also consistent with the definition of gross sales which only includes the amount of money paid to the seller in exchange for goods.

“Electronic Marketplace” is defined as a digital service platform whose business is to connect online buyers with online sellers, 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 logistics services and post-purchase support within such platforms, and otherwise retains oversight over the consummation of the transaction, such as a marketplace for online shopping, a food delivery platform, and a platform for the booking of resort, hotel, or similar accommodations located in the Philippines.

The withholding tax system is a component of the income tax framework. It is not a separate tax but rather a method for the efficient collection of income taxes. Through this system, income tax is deducted at the source by the payor and remitted to the government. It is important to note that the concept of withholding taxes was initially limited to the payment of employees’ wages. It was subsequently extended to other forms of income, such as dividends and interest, among others. The history of withholding tax regulations in the Philippines shows that the obligation to withhold has always been imposed on those who have control over the disbursement of income payments. They are individuals, corporations, partnerships, or associations who have control, receipt, custody over income payments.

The authority of the Secretary of Finance to impose withholding tax on the gross remittance by e-marketplace operators to sellers emanates from and is limited by Section 57 (B) of the Tax Code. This allows the finance secretary to require the withholding on income payable to persons residing in the Philippines by payor-corporations/persons, as provided by law, at a rate not less than 1% but not more than 15%.

Prior to the Ease of Paying Taxes Act, Section 34 (K) of the Tax Code required that withholding must be made at the time the amount becomes paid or payable, whichever comes first, in order to claim certain payments as a deduction from gross income. Thus, it can be concluded that the payor-corporation, upon whom the obligation to withhold may be imposed, must be a person/entity who contracted with and incurred an obligation to pay the payee.

Notably, RR No. 16-2023 imposes an obligation on e-marketplace operators to withhold tax on the gross remittance to sellers. This raises the question of whether the e-marketplace operators, acting merely as paying agents, fall within the purview of payor-corporations for purposes of withholding. In this situation, the aspect “payable” does not apply to them since an amount may be payable at an earlier date when the law already requires remittance of tax even if the liability is actually paid later.

While the amount of withholding may be “byte-sized,” as it is 1% of the gross remittance of each e-marketplace operators, it is expected that with the continuing demands towards digital transformation and shift to e-marketplace operators, the total collections may yield “mega-” to even “giga-byte-sized” revenues to our government.

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

 

Morgan Christan M. Acol is an associate of the Tax department of the Angara Abello Concepcion Regala Cruz Law Offices.