BIR: Online sellers on electronic marketplaces must now pay withholding tax

Digital financial service providers like GCash and Maya have until October 12, 2024, before they are required to impose the withholding tax on online sellers using their platform

MANILA, Philippines – Online sellers or merchants on electronic marketplaces like Shopee and Lazada should now be paying more taxes that are to be withheld by these e-commerce sites, based on a Bureau of Internal Revenue (BIR) regulation that started July 15, Monday.

 “Electronic Marketplace Operators will begin imposing withholding tax against their sellers/merchants starting July 15, 2024. We have already extended this by 90 days. No further extensions will be given,” BIR Commissioner Romeo Lumagui said in a press release on Tuesday, July 16.

He clarified that “withholding tax is not a new tax, it’s merely a system of taxation where taxes are collected at source, which will be credited against the total income tax liability of the sellers/merchants.”

“The BIR aims to level the playing field between brick-and-mortar stores, which are regularly complying with their tax obligations, and online market places. Whether their business is operated online or through physical stores, sellers and merchants have to pay their taxes,” Lumagui added.

Rappler’s tax columnist Mon Abrea said in an article last January that this is not a new tax.

“This is not yet the digital tax. This withholding tax is in effect an advanced collection of the income tax due from the sellers/merchants…,” he said. You can learn more about this here: [Ask the Tax Whiz] Are online sellers/merchants required to pay taxes?)

In another piece Abrea wrote in February, he said: “As clarified by [BIR] Revenue Memorandum Circular (RMC) No. 8-2024, online sellers or merchants are required to register and pay their taxes. However, it is the e-marketplace operators and/or the digital financial service providers (DFSPs) which are required to withhold the 1% tax on gross remittances, and thereafter remit the same to the BIR.”

In late 2023, the BIR issued Revenue Regulation 16-2023, imposing a 1% creditable withholding tax on half of the gross remittances by e-marketplace operators, such as Shopee and Lazada, and digital financial service providers (DFSPs), such as GCash, to online merchants after their goods and services are sold through the platform.

The BIR had previously extended the implementation “in recognition of the compliance needed with the relative policies or requirements of other government agencies and to give the affected parties an opportunity to adjust.” That extension has since passed, and the BIR confirmed that all electronic marketplace operators are now required to impose the withholding tax on sellers starting July 15.

Meanwhile, the BIR granted another 90-day allowance for DFSPs like GCash and Maya to “complete their respective system adjustments,” extending the prescribed transitory period until October 12, 2024. – Rappler.com