The days of cheaper purchases from online stores could soon be over!
This came about after Finance Secretary Benjamin Diokno expressed his support for the Bureau of Internal Revenue (BIR)’s plan to impose withholding tax on Internet merchants, saying doing so will help advance fairness for all vendors.
“It doesn’t just result in higher tax receipts. It’s also a question of justice and a matter of fairness because when you buy from a regular store, you have to pay taxes. But here [in online business], you don’t have to pay, and that’s unfair,” Diokno said in explaining his decision to support the BIR.
“People must first believe that the tax system is fair before they can become prepared to pay,” he added.
Finance Secretary Benjamin Diokno (IMAGE CREDIT: www.bsp.gov.ph)
Online shopping is often cheaper than in physical stores because online retailers have fewer overhead costs. The purchases also come with a chance to apply more discount codes so online buyers can save even more money.
Diokno also argued that aside from the potential increase in tax collection, what is more important now is to determine if it would be possible to collect taxes on these things (online purchases).
“How much money can you truly collect is a different factor to take into account when thinking about the tax system. There may be taxes that are incredibly difficult to administer but simple to collect. How much will it cost you to gather US$100 in total? Yung cost per US$100,” Diokno explained.
“In my opinion, you should also consider how taxes affect the economy. It’s not really single-minded to raise money. Fairness is also an objective, therefore that’s not your sole goal. The goal is simplicity. If taxes were to be imposed, but they were complicated, would anyone be able to form a committee, or not?” he added.
Changing the current revenue regulation
The BIR is attempting to change the current revenue regulation so that income payments made by online platform providers may also be included (in its collection). It argued that for the sake of fairness, online sellers should also be subject to the same tax obligations as traditional brick-and-mortar business owners.
To do so, the tax bureau is set to implement a new rule that would require online platform providers, such as Lazada and Shopee, to pay withholding taxes equivalent to one percent of the money they pay to their partner sellers.
According to the BIR, this withholding tax would be applied to half of the total amount being paid.
The BIR also explained that this is not an additional tax, but rather, a way to enforce existing tax laws and ensure proper tax collection.
Withholding tax is a type of tax collected from various income sources, including salaries, wages, interest, and other earnings.
According to Romeo Lumagui, Jr., BIR Commissioner, the tax agency aims to begin collecting creditable withholding tax from online platform partner merchants by the fourth quarter of this year.