Tax for Online Traders, Sellers and Professionals
One of the doctrines of taxation is that taxes are the lifeblood of our country. Without tax collection, our government cannot be able to fund our national expenditures, such as the construction of bridges, public schools and hospitals, and the implementation of existing laws and government programs that are aimed to protect and enhance the lives of Filipinos. That is why the Bureau of Internal Revenue (BIR), under the supervision and control of the Department of Finance, was given the power and duty by the government to assess and collect national internal revenue taxes and other fees from the taxpayers or people who are required to pay taxes in the Philippines.
For employees, who are purely earning compensation income, their income tax is usually withheld by their employers. That is why they may not be bothered in preparing and filing their own tax returns, except on cases where they are required to file their annual income tax return to the BIR. But for small business owners and self-employed professionals, the burden of taxation is not only on spending money for tax payment but also on spending time and effort in the process of registration, bookkeeping, issuance of invoices, and preparation and filing of tax returns.
Now, the group of business owners, traders, sellers or professional service providers can be further classified into two: the offline traders and the online traders. Offline traders or sellers do most of their transactions without Internet connection. They are usually the ones with existing physical stores or place of business where they accomplish their sales and other business transactions. With physically visible stores or offices, they are usually monitored by the BIR, which cause them to register and comply with the BIR’s various requirements, such as bookkeeping and issuance of invoices to customers.
On the other hand, online traders are more complicated to regulate and monitor by the government. Since they are doing transactions online, which are paperless and which leave lesser audit trail, it is not easy for the BIR to monitor them. But the government is aiming to collect P1.066 trillion in taxes for the year 2012. And with P521.159 billion tax revenues collected in the first six months of the year, it still have to collect P544.84 billion in the remaining six months of the year – more stories at Inquirer.net.
The BIR warning to online traders
And now here comes the BIR giving warning to online traders and entrepreneurs. Commissioner Kim Jacinto-Henares has warned the public that online businesses, such as Sulit.com.ph, eBay.Ph, Alibaba.com, Ayosdito.ph and Multiply.com should be registered with the BIR. This online businesses and sellers have to be registered and issue electronic invoices to customers. Their electronic invoicing should also be registered either directly to the BIR or a third-party accredited by the Bureau – more stories at Interaksyon.com.
The BIR commissioner also said that even online entrepreneurs and sellers who use their personal Facebook accounts for business transactions should register and comply with the invoicing requirement. Online sellers or traders who negotiate on their Facebook accounts and do business transactions on a regular basis should be registered with the BIR and issue the necessary invoices or official receipts. And since the transaction is made online, online traders should also issue invoices online, in which online customers can print copies and keep them. Online sellers should register their electronic invoicing either directly with the BIR or a third-party accredited by them.
The BIR is hoping to push this plan within this year. And with Section 237 of the National Internal Revenue Code, the bureau doesn’t need to issue a revenue regulation to implement their plan. Section 237 of the NIRC states that “all persons subject to an internal revenue tax shall, for each sale or transfer of merchandise or for services rendered valued at Twenty-five pesos (P25.00) or more, should issue duly registered receipts or sales or commercial invoices, with some provisions”.
The online traders’ side
With the warning issued by the BIR, the online community composed of online traders, sellers, professionals and entrepreneurs, who are making money online, expressed different reactions. There are those who agree on the BIR’s plan since it is just according to the law and they are telling that since entrepreneurs and professionals doing transactions offline pay taxes, online entrepreneurs and professionals should also do the same.
For established online businesses which are already registered with the BIR, the news may not affect them much. Other BIR registered businesses that only use the Internet to promote their products, but are doing business transactions in their physical stores or offices, might also not be affected.
But for small online traders and entrepreneurs, the BIR plan might be alarming. That is why there are small online earners who disagree with the BIR, saying the following various reasons:
- BIR registration and compliance with the invoicing will be too costly considering that they are only earning small income and some of them are only doing online business in a part time basis.
- The BIR should focus on running after the big fish or the big corporations which evade taxes instead of running after small entrepreneurs.
- The eCommerce industry in the Philippines, which is just starting to boom, will be hindered if the government will strictly impose taxing online business startups.
- Entrusting hard-earned money to the government is not practical because it will only go to the corrupt government officials.
There are also groups of online entrepreneurs who want the BIR to be clear first with this issue before pursuing on its extended effort to run after the online income earners.
My personal opinion
Every enacted law in the land must be honored by its people. And as the basic principle says – “no one is above the law”, whether you get your means of living offline or online. Thus, the BIR is right to implement income and business taxation on online entrepreneurs and professionals, who are subject to those tax obligations by virtue of the law. However, there are also important things that must be considered by the BIR or by the government before it extends effort in running after the online traders. There are many things to be considered, but I would like to emphasize these two things:
1. The duty to inform
The government must extend its effort in disseminating applicable tax information to online traders. I observe that most small and medium online entrepreneurs are not aware of how the Philippine taxation system works. Most small business owners, offline and online, whom I know, don’t have any idea how to compute their taxes or even register their business with the BIR. Thus, the BIR should make a strengthened campaign to educate online traders outside of their office or beyond their own website.
I have also heard a number of entrepreneurs who are disappointed with the BIR personnel who don’t accommodate their questions. Well, that is maybe the reason why my email is already flooded with tax questions that are supposedly should be asked to the BIR.
Without offense to the good bureau, the fact is that BIR is left behind when it comes to educating and disseminating tax information online. They don’t even utilize social media, like Facebook and Twitter, to educate Filipino entrepreneurs and accommodate their questions. Oh, I found BIR Facebook Page just now, but sadly, it is blank. I’m not also sure if this is the official Facebook Page of the BIR. I think the creator just spend a minute to create the BIR Facebook Page. How could online traders and entrepreneurs, who spend most of their time on the Internet, inquire about useful tax information online? How I wish they can create an active Facebook Page like that of Pag-IBIG Fund.
2. Revenue vs net profit
I understand that the government, through the Department and Finance and the BIR, have to increase effort in raising our national tax revenue. But accounting wise, the government should also understand that they should not only concentrate on tax revenue collection – but they must also consider the cost of collection. Even if the tax authorities would collect more than trillion pesos of taxes from taxpayers if they would spend an unfavorable cost of collection, our nation will suffer deficit.
We are already tired of reading published total amounts of money collected by the government. What we want to know is the details on the information of our national expenses. Check out the graph below showing the deficits the Philippines is incurring throughout the years:
Source: Philippines Department of Finance
When it comes to running after small online entrepreneurs, who may not even capable of paying taxes and fees according to the theoretical justice basic principle of a sound tax policy, some Filipinos may be right to tell the government authorities to run after the big fish first. Why? It’s more difficult and costly to focus on catching these small taxpayers online than to concentrate on catching the big business owners who are evading taxes. The government should consider the cost over benefit in implementing applicable laws. I’m not saying that the BIR should not run after the small online taxpayers, but I am only telling that they should carefully analyze every move they take and determine if it’s economically favorable for the benefit of the whole country.
Fulfilling our duty for the sake of our country
I am hoping for the BIR, the Department of Finance, and every agency of our government to increase their effort in doing their duties effectively… and efficiently. I also encourage volunteerism on the part of every Filipino to obey the law even without warning from the government. You may read our post here on “Should online workers pay taxes to the government?”. We have also listed on that post some of the benefits online entrepreneurs and professionals could get if they will register with the BIR and comply with the tax requirements. In this blog, we have also published some “tax guidelines“ to guide small business owners and professionals on how to deal with their tax responsibilities.
This issue may be too long to tackle in a single blog post. That is why we are expecting more posts about this topic in the future. I just really wish that the BIR would take care and love their taxpayers, who are considered the source of the lifeblood of our country.
It’s August 15 now – the due date for self-employed individuals to file and or pay their second quarter income tax. I’m just happy that I have already filed and pay my tax yesterday to avoid rushing and falling in line today at the bank. This post is open for discussion. So if you have any question, feel free to make a comment below.