Tax Articles

Taxing online business in the midst of COVID-19

By: Atty. Rodel C. Unciano

Of all the many Bureau of Internal Revenue’s (BIR) circulars and issuances released in the midst of COVID-19, not one of them suspended the imposition of tax on business transactions which are otherwise taxable under existing tax laws. If at all, the rules simply extended deadlines for filing of returns or payment of taxes, if applicable, without the imposition of additional interest, charges and any form of penalty despite non-filing of return or non-payment of tax on the original deadline set forth under the Tax Code and regulations. Even Republic Act 11469 or the “Bayanihan to Heal As One Act” did not suspend the taxability of business transactions. Understandably so as the government is not spared from the economic impact of the pandemic.

Criticisms surfaced on the BIR’s call for registration of business or persons involved in digital transactions through the use of any electronic platforms, as circularized in Revenue Memorandum Circular (RMC) 60-2020. They say it is not timely as it adds burden to the public trying to make ends meet during the pandemic.

Business registration is a mandatory requirement under the Tax Code. Section 236 thereof requires registration of every person subject to any internal revenue tax with the BIR on or before the commencement of business. And under Section 237, the issuance of duly registered receipts or sale or commercial invoices is required for sale and transfer of merchandise or for services rendered valued at one hundred pesos (P100) or more. And since no law has been passed suspending the enforcement of these provisions during the pandemic, these requirements are therefore still enforceable, with or without BIR circular reminding everyone to comply.

The BIR’s call for the registration of taxpayers doing online business transactions is not in fact new. During the time of Commissioner Henares, a circular had already been issued reminding online sellers to register with the BIR and issue registered invoices or receipts, either manually or electronically, for every barter, sale or exchange of goods and services. True, this requirement of registration has already been there even prior to the emergence of COVID-19. And the registration requirements are equally applied with no distinction, whether the marketing channel is the internet/digital media or the physical and customary physical medium.

But considering the current health risk associated with COVID-19, what the BIR can probably do now is to devise a system of registration where physical presence of taxpayer at the BIR premises is not required. And this should be true for all businesses whether or not the marketing channel is via the internet/digital media or the customary physical medium.

Under the law, it is the bounden duty of all persons engaged in business to comply with business registration requirements and pay taxes, where applicable. Registration should not be seen as a burden to taxpayers but should be seen as a tool to avail of the full protection of the state particularly in case of suit. Also, registration will help boost business as some customers and clients prefer to do business with someone compliant with law, as they need assurance that they are doing transactions with a legitimate business.

To be clear and as a piece of advice to new players in the online business, registration with the BIR is one thing and payment of taxes is another thing. Registration per se does not necessarily mean payment of income tax. Deductions will still be claimed and only when the result of business operations will yield a taxable income will you be made to pay income tax.

And for individual taxpayers, no income tax will be due if net income during the year does not exceed two hundred fifty thousand pesos (P250,000). It is only when you earn a net income of over 250,000 during the year that our Tax Code now requires you to give your just share to the government. And if your gross annual sales or receipts do not exceed three million pesos (P3,000,000), the Tax Code gives you the option to avail of an eight percent (8%) tax on gross sales or gross receipts and other non-operating income in excess of two hundred fifty thousand pesos (P250,000) in lieu of the graduated income tax rates and percentage tax.

Tax is the lifeblood of the government. Without taxes, the government will fail. Let us therefore do our share when it is due.