e-Commerce is thriving in the Philippines, with startups like Sulit, Ayosdito and Ensogo, as well as established brands like eBay Philippines, gaining popularity in the mass market. But even as these buy-and-sell services offer small entrepreneurs the ability to market their products and services online, Philippine tax authorities are warning against tax avoidance or evasion, particularly unregistered and untaxed online sales.
Bureau of Internal Revenue (BIR) Commissioner Kim Jacinto-Henares warned that any entrepreneur who makes money, but are not registered with the Department of Trade and Industry, nor paying their taxes with the BIR, will be liable. In the same light, any platform that offers e-commerce activities to such unregistered and non-taxpaying entities can likewise be liable, reports Interaksyon.com.
“We will file cases against sellers who fail to issue receipts and pay taxes, but we will also file cases against the websites which provide such service,” said Henares.
She stressed that these platforms operate much like malls and commercial establishments that offer entrepreneurs to do their commercial activities on-site. According to the bureau’s Revenue Regulation 12-2001, “it shall be the primary responsibility of all owners or sub-lessors of commercial establishments/buildings/spaces to ensure that the person intending to lease their commercial space is a BIR-registered taxpayer.”
“In the same way, if you operate a buy and sell website, you have to make sure that your members or subscribers are registered with us. These websites have to make sure that the sellers are issuing receipts, otherwise, they will also be held responsible,” quips Henares. She further said that no additional ruling is necessary explicitly covering online sellers since the National Internal Revenue Code says receipts are required “for each sale or for service valued at P25 or more.”
Will this discourage entrepreneurs?
One question that will come to the mind of any Filipino entrepreneur or casual user then is whether such a ruling will discourage online commerce. What if one is selling a used or second-hand item, and not necessarily earning a profit from their activities? What about swaps or online exchanges of real-world goods?
Additionally, we can perhaps expand this argument to cover independent online workers. Given that Filipinos are already a leading service provider on freelancing platforms like oDesk, how will the local authorities consider freelancers who charge by the hour? Should they also file lawsuits against oDesk for tax evasion or avoidance?
I like the argument against using brick-and-mortar models in solving high-tech problems. Perhaps the BIR should not be imposing strict revenue rulings against online sellers and the platforms through which they offer their goods, but without offering an easy and convenient way to pay their dues. If the authorities can provide an easy and convenient online platform for small entrepreneurs to register their businesses and pay their taxes, then the government may be effectively expanding its tax base at the same time.
For instance, oDesk and other platforms already support tax reporting for U.S.-based users and American citizens working abroad. oDesk even has a Payroll service, which handles both reporting and payments for eligible user.
The issue of taxing freelance work and online commerce in the Philippines is not entirely new, and has been discussed at length time and again. Perhaps the best way to address these pressing concerns are to provide easier and more convenient ways for the people to comply. For instance, if the BIR were to work out a system with platform providers for reporting and making payments — rather than threatening these platforms with lawsuits — it will likely encourage compliance among online entrepreneurs and freelancers.