Tax Articles

Taxation in Tech-Savvy PH 

By: Atty. Jomel N. Manaig

Atty. Jomel N. Manaig Partner   +632 8403-2001 loc.380 This email address is being protected from spambots. You need JavaScript enabled to view it. View Profile

The Philippines, in many ways, is a country of contrasts. Technology and its influence are no exception.

Despite lagging in internet connectivity and dropping a few spots when it comes to digital competitiveness, the country was still recognized with epithets like the “Selfie Capital of the World,” the “Facebook Capital of the World,” and the “BPO Capital of the World,” among others. This contrast became more apparent during and after the pandemic when transactions shifted drastically online.

This shift accelerated developments affecting day-to-day businesses. Services performed online was accepted as the new norm. Online selling and e-marketplaces became a staple of everyday lives. Financial technology helped the digital transformation of routine commerce.

As businesses and transactions transform to adapt to the digital age, the government is never far behind. Taxation, which is not traditionally a digital trailblazer, has donned a rocket and is now trying to reach new heights.

At the closing days of 2023, the BIR gave a post-Christmas surprise to taxpayers by requiring the imposition of withholding tax on gross remittances to sellers/merchants made by e-marketplace operators and digital financial services providers (DFSP). The imposition is sweeping. For e-marketplace operators, it covers gross remittances relating to online shopping, food deliveries, bookings, and other similar online products and services. On the other hand, for DFSPs, it includes gross remittances made thru e-wallets, money transmissions, and other similar modes of payment.

In addition to the withholding tax requirement, the BIR charged e-marketplace operators and DFSPs with ensuring that online sellers/merchants are registered with the BIR.

These requirements, while resource intensive for e-marketplace operators and DFSPs, are seen by the BIR as necessary to plug the leaks from online sellers avoiding their obligation to pay their fair share in taxes. Yes, there will be birth pains, but it is for the common good. I do hope that the BIR be patient and reasonable during the transition. As the saying goes: Rome was not built in a day.

To complement the obligation placed on e-marketplace operators and DFSPs, the BIR released several revenue issuances providing the guidelines for mandatory registration of persons engaged in business. While not expressly issued for online sellers/merchants, the contents of these revenue issuances are clearly for them.

The registration guidelines leverage on the recent digital advancements in the BIR’s services. Chief among these is the Online Registration and Update System (ORUS) which allows registrations and updates via electronic means.

Such digital advancements of the BIR echo the lofty goals and aspirations of the recently passed Ease of Paying Taxes (EOPT) Act. The EOPT brings our tax laws and tax administration into the 21st century by legislating online tax services and ushering in digital transformation.

Even after the EOPT, we are far from done in amending our tax laws. In the pipeline is the impending Digital Services Tax wherein a 12% VAT is to be imposed on nonresident digital service providers. By and large, digital services were once treated as the “wild west” of taxation since there is really very little that our then-tax laws could do to regulate and tax them.

However, with the Digital Services Tax in place, the Philippines will be joining the growing number of countries that are creating laws to regulate the businesses of nonresident digital services providers in their respective jurisdictions. Considering that Amount A of Pillar One still lacks a global consensus, the unilateral imposition of Digital Services Tax by countries is to be expected.

With all these developments, it is but fair to say that not all have been received with fanfare or general acceptance. Enter: the fairly recent revenue issuance clarifying the tax treatment of cross-border services.

The revenue issuance essentially listed several cross-border services that would now be subjected to income tax and VAT despite being performed outside the Philippines. Much of these cross-border services involve services that may be done electronically. Once considered as being beyond the grasp of Philippine taxation, these cross-border services are now in a tight grip by the BIR.

While a subsequent issuance further clarified that the new tax treatment does not automatically apply to cross-border service agreements, the realities on the ground are different. Examiners are starting to wantonly subject cross-border services to income tax and VAT. Perhaps the BIR may issue clearer guidance to its own examiners?

All of these developments may be a bit to take in all at once. But with the Philippines being one of the fastest-growing digital economies among major ASEAN member states, it pays to be acquainted with all of them.