AMENDING the economic provisions of the constitution will address a number of “uncertainties” that concern foreign investors, the Foundation for Economic Freedom (FEF) said.

“We believe that foreign investors have long been discouraged by long-term uncertainty. The uncertainty in our economic policy framework stems from the contradiction between the restrictive provisions in our Constitution and the attempts to mitigate them through legislation,” it said in a statement on Tuesday.

In March, a bill seeking to lift foreign ownership limits in the 1987 Philippine Constitution was approved on third and final reading by the House of Representatives.

The FEF said that pending legislation seeking to amend the constitution’s economic provisions will “provide certainty to the country’s economic policy direction.”

The statement was issued in response to a paper by the University of the Philippines School of Economics (UPSE).

The FEF said that the paper “fails to take into consideration the long history of anti-foreign direct investment (FDI) policies in our 1935, 1973, and 1987 Constitutions, which have all espoused the protectionist economic model.”

“Given the state of our economy vis-à-vis our neighbors who have taken a more liberal route, the model has clearly failed. Likewise, the factors affecting FDI are complex, including the country’s history of xenophobic economic policies and protectionist elite politics,” it added.

The FEF noted the UPSE paper’s argument that reducing equity restrictions have no significant impact on FDI inflows.

“The paper makes a reasonable observation that the factors affecting FDIs are complex, context-dependent, and are subject to other factors such as corruption, infrastructure and regulatory regimes. Corruption and infrastructure gaps could very well be more significant turn offs for foreign investors, and there’s no denying the need to undertake arduous reforms in these areas, not just for FDI, but also for stronger overall economic performance,” it said.

“This, however, does not rule out the need for reducing restrictions on foreign equity. The studies mentioned in the paper showed that the coefficient of FDI regulatory restrictiveness is significantly different from zero and this warrants the need to address this variable as part of economic liberalization,” it added.

It also noted that there is a “critical mass of reforms” needed to attract more foreign investment.

“We believe that removing the restrictions is a necessary condition since we have to open the door first for investors to be able to come in. For foreign businesses to benefit from better institutions and processes, they must enter the country first,” the FEF said.

“Removing these anti-FDI provisions in the Constitution will signal our openness to foreign investment,” it added. — Luisa Maria Jacinta C. Jocson

THE Bureau of Internal Revenue (BIR) must continue supporting online platforms and sellers during the rollout of a withholding tax scheme amid complaints about difficulties with compliance, a tax practitioner said.

“It is not unusual for the BIR to extend the period to comply, especially if they are introducing a new requirement. It shows that the BIR recognizes the difficulty of the taxpayers in adjusting to the new requirements,” Eleanor L. Roque, tax principal of P&A Grant Thornton, said in a Viber message.

The BIR recently released a circular that extended the transition period to comply with the withholding tax rules by another 90 days.

Electronic marketplace operators and digital financial services providers now have until July 14 to comply with the regulations. The deadline was originally April 14.

In a statement on Tuesday, the BIR said the extension was made at the request of the private sector.

“We hear the thoughts of the private sector, and if they are reasonable, then we make policy adjustments,” BIR Commissioner Romeo D. Lumagui, Jr. said.

Revenue Regulations No. 16-2923, which took effect on Jan. 11, impose withholding tax of 1% on one-half of the gross remittances by e-marketplace operators and digital financial service providers to the sellers or merchants on goods and services paid for or sold through their platforms or facilities.

“The online transactions industry has experienced significant growth during and after the pandemic. However, it appears that a lot of online sellers are not paying their just share in taxes. This would be unfair to bricks-and-mortar stores that are regularly complying with their tax obligations,” the BIR added.

The tax applies to marketplaces for online shopping, food delivery platforms, platforms to book lodging accommodations, and other similar online service or product marketplaces.

It is not imposed if the annual total gross remittances to an online seller for the past taxable year have not exceeded P500,000; if the cumulative gross remittances to an online seller in a taxable year has not yet exceeded P500,000 or if the seller is duly exempt from or subject to a lower income tax rate pursuant to any existing law or treaty.

The withholding tax is one of the government’s initiatives to better regulate the digital economy.

Mr. Lumagui told reporters on Monday that the BIR is working to ensure online sellers are compliant.

“We will continue to do our information campaign for online sellers because we believe in our soft approach, as much as possible, we do not want to be aggressive,” he said.

“After our soft approach, we will definitely be strict and we will be forced to shut down online selling platforms if they really do not register,” he added.

Ms. Roque said that taxpayers may not be well-informed on the regulations, which led to the need for the extension.

“The e-marketplace and digital financial services providers need to get the information and documents from the online sellers. I have seen in several group chats of online sellers that they are still apprehensive or unsure about the requirements so they will probably not submit the requirements on time,” she said.

The BIR must find ways to better educate and inform online platforms on the implementation of the withholding scheme, Ms. Roque said.

“The BIR can probably intensify education campaigns to online sellers to address the questions. They can probably make vlogs or easy to understand instructional videos for online sellers to understand the requirements and address their questions,” she said.

Rodolfo B. Javellana, Jr., president of the United Filipino Consumers and Commuters, likewise called for improved information dissemination.

“This situation shows that many online businesses are not familiar with regulations imposed by the government,” he said.

Online platforms like Shopee have released notices that they will resume charging withholding tax on July 15.

“As of April 15, 2024 (3 p.m.), Shopee has lifted the restrictions to edit and create new listings. Additionally, charging of withholding tax has been put on hold until the deadline,” it said.

“For shops that are currently frozen due to noncompliance, these restrictions will be lifted in the next 2-3 business days. For sellers who were already taxed the corresponding withholding taxes, these will be reversed in the following weeks,” it added.

Shopee also reminded its sellers to complete their registration requirements.

Online shopping platform Lazada has also disseminated the updated details of the implementation of the withholding tax.

“According to Revenue Memorandum No. 8-2024, all local e-marketplaces should start collecting by July 15, 2024,” it said on its website.

Mr. Javellana also cautioned that the withholding tax should not be used as an excuse for online sellers to pass on costs to consumers.

“The burden of this tax is not on the online sellers, but the consumers. The sellers will pass on this 1% tax to the consumers,” he said.

“I think the sellers are going through an adjustment period. The bigger businesses are the most ready. They will likely pass on costs to consumers. We hope that this will not be used as a pretext for raising prices,” he added. — Luisa Maria Jacinta C. Jocson