Consumers may pay more for online goods once withholding tax is imposed 

By Luisa Maria Jacinta C. Jocson, Reporter

CONSUMERS may have to pay more for online goods and services as the government plans to start imposing a creditable withholding tax on partner-merchants of online platforms later this year.

“The bottom line is that ordinary consumers will be the ones affected by this tax. Commodities, transportation, anything that is availed online, will be hit by this tax. Businesses will pass this cost off to the ordinary consumers,” Rodolfo B. Javellana, Jr., president of the United Filipino Consumers and Commuters, said in mixed English and Filipino via phone call.

The Bureau of Internal Revenue (BIR) last week said it plans to impose a creditable withholding tax of 1% on one-half of the gross remittances of online platform providers to their partner-sellers or merchants as early as the fourth quarter.

This would cover online platform providers such as marketplaces, food delivery and transportation apps, and e-wallets. Examples include Shopee, Lazada, Airbnb, Grab, Angkas, GCash and Maya.

“(The tax’s) imposition has faced resistance from online platform providers, who argue that it could stifle innovation, burden small businesses, and potentially lead to increased costs for consumers,” Angelito M. Villanueva, founding chairman of Fintech Alliance.PH and Rizal Commercial Banking Corp. Executive Vice-President and Chief Innovation and Inclusion Officer, said in a Viber message.

“On the other hand, some governments view it as a necessary step to ensure a level playing field and fair taxation between traditional businesses and their digital counterparts,” he added.

Finance Secretary Benjamin E. Diokno last week said that the withholding tax will create a level playing field between online and brick-and-mortar stores.

“It’s not only increasing tax revenues, it’s a matter of fairness. A good tax system should be fair. If you buy something from a regular store, you pay tax. But if you buy it online, there’s no tax and that’s unfair. People have to perceive that the tax system is fair, so they’re willing to pay,” he said in mixed English and Filipino in a press chat on Friday.

Michael L. Ricafort, chief economist at Rizal Commercial Banking Corp., said the imposition of a withholding tax would remove the “tax advantage” of online sellers.

“(This) would lead to inclusion of taxes on selling prices. It could lead to some decrease in demand, as the tax treatment would be the same as physical stores, the same of which would pick up in view of narrowing price differentials with online stores,” he said in a Viber message.

“As consumers would have to pay more for their online purchases, any price advantage could be reduced, if not eliminated, while giving the government more recurring tax revenue collections for the coming years,” he added.

Instead of imposing the withholding tax, Mr. Javellana said that the government should have better monitoring systems for online sellers.

“The Department of Trade and Industry and other agencies should monitor the registration of online businesses, and from there, create better regulations, not impose taxes,” he said.

“The government should make sure that there is no business that can operate without being monitored. That’s how the system is improved, not through taxation,” he added.

Earlier data from the Trade department showed that there were about two million entities registered as online sellers as of 2022.

The digital economy contributed P2.08 trillion last year, equivalent to 9.4% of gross domestic product. Of this, e-commerce’s share to the economy reached 20% or P416.12 billion.

Mr. Villanueva said that the government must “thoroughly assess the potential consequences” through discussions with stakeholders, including online platform providers, partner-sellers, and consumer advocacy groups.

“This tax measure must strike a fair balance between taxation and fostering a conducive environment for digital commerce. Ultimately, a collaborative and well-informed approach that takes into account the complex dynamics of the digital economy are essential to arrive at a taxation model that supports sustainable growth, maintains a competitive environment, and fairly addresses the concerns of all stakeholders involved,” Mr. Villanueva said.