BIR, House deliver double whammy to online vendors
MANILA, Philippines — Online merchants and their clients were in the Duterte government’s tax sights on Wednesday as the search for much-needed revenues during a pandemic intensified in the digital arena.
The Bureau of Internal Revenue (BIR) extended by a month to Aug. 31 the deadline for e-commerce merchants to register their business. The order was contained under Revenue Memorandum Order No. 75-2020 released Wednesday, and while good news, still means the tax agency will run after firms failing to comply after the registration period.
Worse news came from Congress during the day after the same legislators who asked BIR to extend tax registration also moved swiftly at a House of Representatives committee to approve a digital economy tax— one that charges value-added tax on sales of tech giants like Amazon.com Inc. and Netflix Inc.
Once enacted, revenues from subscription fees will be levied and should be reported. While the bill does not tax customers directly, higher VAT costs would most likely be passed by companies to their clients.
“If brick-and-mortar establishments, which are the hardest-hit by the pandemic, have to pay VAT (value-added tax), the giants of e-commerce shouldn’t be exempt,” said House and ways vice-chair Joey Salceda, the bill’s author.
The twin developments on digital taxes highlight a government scrambling to collect more revenues at a time brick-and-mortar businesses are reporting fewer sales, or worse, closing down and laying off workers.
With tepid operations and declining sales, taxes from typical dine-outs to cinema receipts have plummeted, something the government already expected— revenues are seen to drop 16.7% this year— but is not taking sitting down.
“We imposed no new taxes. We’re simply clarifying that they should be VATed. In general, if you sell, you pay VAT, unless you fall under the exemptions for small businesses,” Salceda said.
Enforcement challenge
As it is, there is actually no need for a specified digital transactions tax. Under the National Internal Revenue Code, all sales, regardless of medium, are supposed to be levied. The law itself does not distinguish on the mode the sale was made, making it adaptive to times when most transactions are going online.
Salceda himself recognized this. “We imposed no new taxes. We’re simply clarifying that they should be VATed. In general, if you sell, you pay VAT, unless you fall under the exemptions for small businesses,” he said.
The same argument was used by BIR when it released RMC 60-2020 last June and gave online proprietors up to July 31 to register for tax identification numbers, report their “past” earnings, and pay taxes. The order, issued while almost everyone was staying home and trying to make a living, triggered public backlash, prompting the latest extension of period to register.
That said, nothing stops the BIR to collect taxes from online sales, the only question is how will this be done.
The Salceda bill, in particular, aims to collect P10.66 billion on its first year of implementation from online firms earning more than P3 million yearly. However, it remains unclear how collections will be made especially that these tech companies cater to clients even outside the Philippines.
This enforcement problem is not unique here. In Europe, policymakers have struggled to run after the likes of Google for taxes they think the tech company should pay up. These companies have also fought hard against any form of regulation.
For customers, Salceda sought to allay fears that the proposed digital economy VAT would hurt poor Filipinos. “(Seventy-seven percent) of the revenues will come from upper middle-income families and above... This is the mildest imposition you can make when the country is in severe need of new revenues,” the lawmaker said.
“In other words, this will not be felt by the most vulnerable households, and will be felt only very mildly by the richest households, but it will certainly generate new revenues for our COVID-(19) response,” he added.
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