A 1% Withholding Tax May Be Imposed on Online Sellers Soon

withholding tax online sellers

A lawmaker has also given warning regarding BIR’s planned withholding tax policy on online sellers.

With e-commerce sales in the country expected to hit PHP 969 billion by 2026, it is clear that online sellers are thriving. However, it has long been a debate how online sellers should be taxed. Late last year, the Bureau of Internal Revenue (BIR) revealed its plans to impose a 1% withholding tax on online sellers by January 2024 at the latest. The agency first revealed its plans to tax online sellers early in 2023. 

According to a report, the BIR is “finalizing the rules on the proposal to charge a creditable withholding tax of 1% on one-half of the gross remittances of online platform providers to their partner sellers or merchants after it collected comments from the public, online platforms, and other stakeholders.” 

The same report defines the withholding tax as “the amount withheld by a business in payments of goods or services directly remitted to the government on behalf of suppliers or employees.” 

Exemptions to the Withholding Tax Policy

The agency clarified that not all online sellers will be affected should this policy become official. Specifically, online sellers who earn less than PHP 250,000 annually do not have to worry about the withholding tax. The Tax Reform for Acceleration and Inclusion (TRAIN) law prohibits persons earning less than PHP 250,000 annually from being taxed. 

A Lawmaker Issues a Warning

While the imposition of the withholding tax has yet to be finalized as of press time, a lawmaker has already aired a warning. 

House Committee on Ways and Means Chairperson Joey Salceda said that the policy is not backed by legislation, nor by comprehensive consultation. 

“It would be better if they wait for the law to be passed. Because before you collect taxes from the people, you need to listen to them first,” he said, according to a report

He added, “They will do it (1%) through Executive Order or RMC (Revenue Memorandum Circular), but there is already a bill that passed the crucible of public opinion in the House when it comes to taxing digital services, and that is pending in the Senate.”

The bill being referred to is House Bill 4122. The bill proposes a 5% Value Added Tax (VAT) on registered non-resident digital service providers who are providing services to the government. A 12% tax will be imposed for the rest should the bill become law.

Rep. Salcedo recommends that BIR wait for the bill to be passed first. 

How This Will Affect Online Sellers

Many Filipinos, especially after the pandemic, have relied on online selling for their income. Imposing any tax on online sellers will affect their sales, which no seller will be in favor of. In addition, the burden of such taxes can be passed on to the consumers. Online sellers may end up losing customers should this be the case. 

Given the potential effects taxes can have on online sellers, the government should make sure to have a comprehensive consultation first with all stakeholders. This will ensure that all concerns are communicated and a solution that is agreed upon by everyone can be implemented. 

Any policy fails when there is no transparency and communication between those involved. The government should ensure that all voices are heard and there is a fair process before implementing any new policy on the people.