Online Sellers Are Now Required to Pay Withholding Tax

(SPOT.ph) Starting July 15, online sellers earning over P500,000 annually will have to pay a 1% withholding tax on gross sales—and it could affect your online shopping experience.

This follows the end of the Bureau of Internal Revenue’s (BIR) 90-day extension to allow businesses time to comply with the new tax regulations under RMC No. 55-2024.

"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 Jr. said in a news release.

The BIR defines electronic marketplace operators as a "digital service platform whose business is to connect online buyers/consumers with online sellers/merchants, facilitate and conclude the sales, process the payment of the products, goods or services through such digital platform, or facilitate the shipment of goods or provide logistic services and post-purchase support within such platforms." Think online shopping, food delivery platforms, and hotel booking platforms.

Also read: Don't Miss The BIR Deadlines For 2024 With This Tax Payment Guide

What will withholding tax mean for buyers?

For buyers, there may be concerns that the additional tax could lead to higher prices as online sellers might pass on this burden to consumers. However, the BIR has clarified that this should not happen.

“Itong pagawa ng withholding tax ay hindi dapat magresulta sa pagtaas ng presyo ng mga produkto na binebenta online dahil hindi ito parang value-added tax na idinadagdag,” Lumagui said in an interview with News5.

Withholding tax is the amount online marketplaces take from a merchant’s paycheck to send to the government. This tax is like a pre-payment on your annual income taxes, which you'll file at the end of the year. The purpose of withholding tax is to ensure that the government gets a steady flow of revenue throughout the year, rather than waiting for everyone to pay taxes all at once.

This move is the BIR’s attempt to level the playing field between online and traditional stores, ensuring online businesses contribute a timely share to the country's tax revenue. The BIR estimates that this measure will generate over P500,000 in additional revenue from online sellers every year.

"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,” Lumagui said.

Digital financial service providers like GCash and Maya are also covered under this new regulation, but they have been given an extension until October 12 to complete system adjustments for compliance.

Also read: Congress Approves Bill Taxing Netflix, YouTube, Facebook