Online selling: Tax obligations 101
By Ken John Asadon
“‘Tis impossible to be sure of anything but death and taxes,” an excerpt from The Cobbler of Preston of
the late Christopher Bullock. The “death and taxes” thing is commonly used and we are surely aware, as
well as agree, that these two are the most certain events under any circumstances.
The continued spread of coronavirus disease 2019 (Covid-19) in our country has made an enormous impact
on the daily lives as well as the daily business operations of all our fellowmen. As the World Health
Organization declared Covid-19 as a pandemic, many businesses and employees are forced to adopt a work
from home arrangement. Health protocols and social distancing have been put into place to somehow
reduce the spread of such viruses. With the government’s implementation of the general community
quarantine with heightened restrictions all over the National Capital Region Plus (including Bulacan,
Rizal, Laguna and Cavite) and the rest of the country in a more relaxed modified general community
quarantine, there had been a decline in traditional way of shopping and an increase in using online
platforms for selling products as Filipino people finally learned to adopt the e-commerce to fill
their empty shelves.
Online shopping, particularly the everyday essential needs of consumers, is booming. It is expected
that many businesses are planning to open their online stores in the coming months or even years. It
is important to know the rules and regulations that may affect the online business especially its
tax obligations. Whether you have a physical store or not, as long as you earn an income within the
country, you are subject to corresponding taxes. The increasing trend of online business has been
noticed by the Bureau of Internal Revenue (BIR). In this article, we will provide you the
obligations of every online seller.
In 2013, the BIR issued Revenue Memorandum Circular (RMC) 55-2013 taxpayers’ obligations in
relation to online business transactions as they have seen growth in the number of these
transactions. The BIR clarified that tax treatment of purchases (local or imported) and sale
(local or international) of goods (tangible or intangible) or services shall be equally applied
with no distinction on whether the marketing channel is the internet/digital media or the typical
and customary physical medium.
RMC 55-2013 identifies the common types of online business transactions in the Philippines
primarily online shopping or online retailing and online intermediary service.
• Online shopping or online retailing — the consumers directly buy goods or services from an online
seller through an e-commerce portal or virtual shops.
• Online intermediary service — the intermediary is a third party that liaises between two trading
parties. Generally, a “principal-agent” relationship wherein the intermediary receives commission or
incentives for successfully generating sales for the principal seller.
Like a traditional business, these online businesses are mandated to register with the BIR to
ensure compliance with their tax obligations as follows:
a. Secure a certificate of registration
b. Secure authority to print and register books of accounts
c. Issue receipts and/or invoices
d. Withhold required creditable/expanded withholding tax, final tax, withholding tax on
compensation and other withholding taxes
e. File applicable tax returns on due dates and pay corresponding taxes
f. Keep books of accounts updated
During 2020, BIR issued the RMC 60-2020 (as amended by RMC 92-2020), which provides guidelines and
all those online sellers in the Philippines should register their online businesses on or before
Sept. 30, 2020 (from its previous deadline July 30, 2020). Those who failed to register shall be
imposed applicable penalties.
Following are the tax obligations to different types of online transactions:
1. Online sellers/online retailers
• If payment is made through a credit card company, the online seller should issue electronically the BIR
registered invoice/receipt for the full amount of the sale. Additionally, the seller should pay the
commission of the credit card company net of 10-percent expanded withholding tax (EWT).
• If payment is made through cash on delivery (COD), the seller should issue electronically or manually
the BIR registered invoice/receipt for the full amount of the sale.
• If payment is made through banks, the seller should issue invoice/receipt to the buyer and
acknowledgment receipt to the bank for the amount received.
2. Online intermediary service providers
• Online intermediary service providers, acting as agents, shall have the assigned number of pads of receipt
from the seller, required to issue seller’s invoice/receipt to the buyer. Issue also invoice/receipt for the
full amount of the agreed commission and reflecting therein the amount withheld by seller.
• If collection/payment is under the control of the intermediary, should issue electronically the
invoice/receipt for the full amount of the sale to the buyer, issue acknowledgment receipt to the bank or
credit card company for the amount received, pay the commission of credit card company net of 10-percent
EWT and remit the balance to the seller net of intermediary’s agreed mark-up/commission.
• If payment is made through COD, intermediary should secure the invoice/receipt from the seller before
delivery of goods to buyer/performance of service, issue either electronically or manually the BIR
registered invoice/receipt for the full amount of the sale to the buyer and finally, issue receipt for
the amount of commission received from the seller.
We are likely to see a huge shift to online shopping of many brick-and-mortar stores due to the recent
implementation of temporary shutdown of most physical stores in the Philippines. As the trend in online
business transactions continues to expand, the BIR will surely scrutinize and monitor the compliance of
these businesses to ensure proper collection of taxes from profits gained in the conduct of online
business transactions. As what one of the great philosophers, Aristotle, once said, “Ignorantia iuris
nocet” (not knowing the law is harmful). For online sellers and retailers, whether small-scale or
large-scale, it is important to have knowledge and understand your tax obligations to avoid noncompliance
and imposition of huge amounts of penalties.
Ken John B. Asadon, CPA, CTT is the tax partner of Paguio, Dumayas & Associates, CPAs (PrimeGlobal Philippines),
and a member of the Association of CPAs in Public Practice (Acpapp). The opinion of the writer does not
reflect in any way the opinion of these institutions.