Incentives may encourage online sellers to pay taxes, say experts

THE GOVERNMENT should upgrade its tax system and consider offering incentives to improve the collection of taxes from online sellers, experts said.

Froilyn P. Doyaoen-Pagayatan, tax counsel of Gorriceta Africa Cauton & Saavedra law offices, said tax agencies are already equipped with the statutory basis for collecting taxes from online sellers.

“However, there is a need for the taxing authorities to improve their enforcement of the tax rules on online sellers. Our taxing authorities need to upgrade technological facilities and train their people on how to use technology in the collection of taxes,” she said in an e-mail.

The popularity of online businesses, as well as e-commerce platforms like Shopee and Lazada, grew during the pandemic as lockdowns forced people to stay home. As of 2022, the Trade department estimated there are around two million entities doing business as online sellers.

However, not all online sellers pay proper taxes. This has prompted the Bureau of Internal Revenue (BIR) to look for better ways to collect taxes from online sellers.

“Because taxes are the lifeblood of the government and that most business activities are undertaken online these days, it is a matter of government survival that the digital economy is taxed through an efficient tax system,” Ms. Doyaoen-Pagayatan said.

Richard R. Ibarra, tax director at P&A Grant Thornton, said the government should offer incentives in order to encourage online sellers to register and pay taxes.

“If online sellers register, they can be given a deduction, so they are encouraged to comply. Instead of giving out penalties, let’s find a suitable model,” he said in a phone interview.

Mr. Ibarra said that online platforms should also work as agents of the BIR, noting that the withholding tax system would work best to monitor online sellers.

“That way, the government can identify if the online seller is declaring properly. (The platform) can report on transactions. The online sellers would then be scared if they didn’t properly declare taxes,” he said.

The BIR currently has a number of measures and regulations to monitor collections from online platforms and sellers.

Under the Tax Reform for Acceleration and Inclusion Law, taxpayers engaged in e-commerce are required to use the BIR’s Electronic Invoicing/Receipting System. The system allows taxpayers to issue electronic receipts and invoices, which are then transmitted to the BIR.

As early as 2013, the BIR also issued Revenue Memorandum Circular No. 55, which reiterates that those involved in online businesses, including online shopping and online retailing, must still file and pay for taxes.

Under the same circular, persons who conduct business through online transactions must register their business with the BIR, issue registered invoice and receipts for every sale, and withhold required creditable or expanded withholding tax and remit these to the BIR.

Ms. Doyaoen-Pagayatan also said it is important that the Philippines is aligned with the worldwide efforts to improve taxation of online sellers, “otherwise, other countries could limit trade transactions with the country.”

She cited the Base Erosion and Profit Shifting project led by the Organization for Economic Cooperation and Development (OECD). It aims to promote tax planning strategies used by multinational enterprises that exploit gaps and mismatches in tax rules to avoid paying tax.

Under the project, the OECD also launched a framework that aims to address tax challenges arising from the digitalization economies worldwide.

“With some countries lacking the capability or system to tax online sellers, such as the Philippines, online sellers could shift the revenue for such online sales to such countries, like the Philippines, in order to avoid or minimize taxes. In the process, the efforts of other countries to tax online sellers are undermined,” Ms. Doyaoen-Pagayatan said.

She said the BIR should make tax registration and other processes easier for taxpayers.

“Currently, tax registration and compliance, especially, are still difficult and time consuming that it discourages online businesses from registering and complying for tax purposes,” she said.

The BIR has been ramping up its digitalization efforts after it adopted a 10-year digitalization roadmap in 2019. In December, the agency launched its Online Registration and Update System, which allows taxpayers to fully register with the BIR online.

“The tax system needs to be relaxed, especially in filing tax returns. A quarterly or semi-annual system would help boost compliance,” Mr. Ibarra added.

In 2021, the digital economy contributed PHP 1.87 trillion or 9.6% to the Philippines’ gross domestic product. — By Luisa Maria Jacinta C. Jocson, Reporter