BIR imposes 1% withholding tax on online sellers

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BIR tax online sellers
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  • The Bureau of Internal Revenue is imposing a 1% withholding tax on online merchants
  • The tax will be levied on half of total remittances by e-marketplace operators and digital financial services providers
  • Exempt are online merchants earning less than half a million pesos annually
  • The regulation applies to operators of electronic marketplaces and digital financial services providers

The Bureau of Internal Revenue (BIR) is imposing a one percent withholding tax on online merchants to benefit from the growing e-commerce industry.

The regulation exempts online sellers with yearly gross remittances under P500,000 or cumulative gross remittances below this limit. Sellers eligible for a lower income tax rate or exemptions under existing laws or treaties may also be exempted, provided they furnish the necessary documentation supporting their claim.

BIR Revenue Regulations No. 16-2023 dated December 21, 2023 focuses on electronic marketplace operators and digital financial services providers. It is set to take effect 15 days after publication in the Official Gazette or a newspaper of general circulation.

The regulation introduces a one percent withholding tax on half of the total remittances by e-marketplace operators and digital financial services providers to merchants for goods or services paid through their platforms. Gross remittance refers to the overall amount received by these operators or providers from transactions on their platforms.

Digital financial services providers, acting as intermediaries facilitating online transactions, include mobile payment services, banking services, or credit cards. This latest tax rule adds an extra layer, requiring a one percent tax on half of the total amount disbursed by online financial platforms to their partner sellers or merchants.

The BIR action aligns with its plan to tax online sellers by the end of 2023, supporting the government’s strategy to boost e-commerce growth in the country.

READ: PH e-commerce sales to reach $24B by 2025

The regulation relies on Sections 244 and 245 of the National Internal Revenue Code of 1997 to amend Revenue Regulations No. 2-98. It specifically targets Sections 2.57.2 and 2.57.3, aiming to introduce a withholding tax on gross remittances from electronic marketplace operators and digital financial services providers to sellers or merchants.

According to the provision, the withholding tax is the seller’s responsibility, even though the buyer, e-marketplace operator, or digital financial services provider withholds it. This tax deduction reduces the agreed-upon consideration or selling price, leaving the seller with the net difference.

The withholding tax covers remittances made by digital financial services providers to sellers through their e-wallet feature or similar modes of payment and money transmission related to buyer payments, whether made directly in physical stores or through online platforms.

The provisions, outlined in Sections 2.57.2 and 2.57.3, appoint certain entities as withholding agents responsible for deducting and withholding the required income tax on the specified payments.