RMC 60-2020: Registration and Tax Compliance of Online Sellers in Philippines

By: Garry S. Pagaspas, CPA

Bureau of Internal Revenue (BIR) issued Revenue Memorandum Circular No. 60-2020 (RMC No. 60-2020) dated June 1, 2020 entitled “Obligations of Persons Conducting Business transactions Through Any Forms of Electronic Media, and Notice to Unregistered Businesses.”

Under RMC No. 60-2020 in Philippines gives due notice to all persons doing business and earning income in any manner or form, specifically those in the digital transactions through the use of any electronic platforms and media, and other digital means to register such business and comply with applicable tax regulations.

For reference on registration, RMC No. 60-2020 in Philippines provides basic guidelines and all those online sellers in Philippines who will register their business activity and/ or update their registration status not later than July 31, 2020 ( further extended to September 30, 2020 by RMC 92-20), shall not be penalized for late registration. Within the same period of until July 31, 2020, online sellers in Philippines are encouraged to voluntarily declare their past transactions and pay corresponding tax without penalty. Online sellers who will fail to register and/or update registration, and voluntarily pay tax on previous transactions shall be imposed applicable penalties.

Finally, RMC No. 60-2020 advises online sellers in Philippines who are newly registered to comply with the following:

• Issuance of BIR-registered sales invoice or official receipts for every sale of goods or service;
• Keeping of registered books of accounts and other accounting records of business transactions;
• Withholding of taxes, if applicable;
• Filing of required tax returns; and,
• Payment of correct taxes due on time.

Please be guided by the provision of RMC No. 60-2020.

Comment:

Notably, online selling has been very popular during the COVID-19 quarantine from March 15, 2020 as communities held hands to help one another survive during the lockdown. I myself, has heavily relied on online sales of the neighborhood based on the Facebook business group created in the community for the purpose and it seems this has became very common among communities. When the lockdown became more strict and ques on supermarkets and groceries became longer than usual, I had heavily relied on such business group for daily supply of food and other home necessities and have survived for more than a month without going out for groceries and food supplies. For that, I owe our neighbors a lifetime gratitude and would definitely support the welfare of online sellers in Philippines.

A. Tax regulation on online sellers in Philippines not really new

Tax on online sellers in the Philippines is not really new. First, the general rule is that those engaged in trade or business are taxable under the Tax Code, as amended, and it is without distinction on whichever platform – manual in stores/ supermarkers or online selling in the Philippines. Second, as to regulation, RMC 60-2020 is not also new as BIR in the past issued Revenue Memorandum Circular No. 055-2013 (RMC No. 55-2013) entitled “Reiterating Taxpayer’s Obligations in Relation to Online Business Transactions“, except that at that time, the emphasis was more on online selling platforms along with online sellers. You may refer to the RMC No. 55-2013 for more details on previous tax rules reiterated therein.

B. BIR registration of online sellers in Philippines can enjoy tax exemption

What RMC No. 60-2020 provides is the registration or update of those unregistered and compliance with applicable tax rules along with voluntary declaration and payment of previous online sales transactions not later than July 31, 2020. It does not really define taxability of online sellers and under current tax rules, online sellers in Philippines can actually enjoy tax exemptions such as under the following:

• Tax exemptions on marginal income earners

Under Revenue Regulations No. 11-2000 dated December 12, 2000, marginal income earners are those individuals not deriving income from compensation under employer-employee relationship but who are self-employed and deriving gross sales/ receipts not exceeding PhP100,000.00 during any 12-month period. Below are the tax implications of marginal income earners:

• Required to register and issued Tax Identification Number but is exempted to pay PhP500.00 registration fees;
• Exemption from maintaining books of accounts in Philippines;
• Exemption from compliance with the issuance of receipts and receipts under Section 237 of the Tax Code, as amended;
• Filing annual income tax return;
• Exemption from audited financial statements in Philippines;
• Exemptions from 12% Value added tax (VAT) or 3% other percentage tax (OPT) in Philippines;
• Exemption from expanded withholding tax on its sales under Revenue Regulations No. 2-1998, as amended;

For the purpose, we suggest you deal with BIR office covering location for the registration as marginal income earner to avail of the above exemptions.

• Tax exemptions under Barangay Micro Business Enterprise (BMBE)

Another related rule is the Barangay Micro Business Enterprise (BMBE) under Republic Act No. 9178 otherwise known as “Barangay Micro Business Enterprises (BMBEs) Act of 2002” and under this, a BMBE is any business entity or enterprise engaged in the production, processing or manufacturing of products or commodities, including agro-processing, trading and services, whose total assets including those arising from loans but exclusive of the land on which particular business entity’s office, plant, and equipment are situated, shall not be more than PhP3,000,000.00. For the purpose, a BMBE will be issued by Department of Trade and Industry (DTI) a Certificate of Authority (COA) valid for 2 years and renewable for a period of 2 years for every renewal. As BMBE, the following are some implications:

• Registration with BIR as BMBE based on Certificate of Authority;
• Exemption from income tax;
• Liability for 12% value added tax (VAT) or 3% other percentage taxes (OPT);
• Exemption from audited financial statements by implication of TRAIN or RA No. 10963 for annual sales/ revenue not more than PhP3M;
• Exemptions from minimum wage law implications.

Notably, as BMBE online seller in Philippines under RA No. 9178, its registration carries with it exemption from income tax. However, it is liable to business tax unlike marginal income earners.

Conclusion

Based on the above, taxation of online sellers in Philippines under RMC 60-2020 is not really a new rule. Likewise, registration as online seller does not necessarily equates to absolute taxation as some programs on marginal income earners and barangay micro business enterprise may provide them some incentives. At any rate, availing of these incentives would require registration so online seller could closely coordinate with the BIR RDO covering location of their online business. Another good thing is that BIR registration will no longer require Mayor’s Permit under RMC No. 57-2020 and is expected to be more simple and faster to secure.

Finally, on the tax side of online sellers in Philippines, the 8% tax based on gross income that applies to non-VAT taxpayers in lieu of 20-35% income tax and 3% other percentage tax under the Tax Reform for Acceleration and Inclusion Act (TRAIN) or RA No. 10963.

About the author:

Garry is a Certified Public Accountant (CPA) and a law degree holder in tax practice for two (2) decades helping further taxpayers on securing BIR Rulings, appeal of BIR Ruling denials, company registrations in Philippines, tax compliance, tax savings, tax assessments, tax refunds, and other related professional tax services. He has likewise been helping out local and foreign investors/clients determine the most appropriate legal entity to register in the Philippines based on intended operations, the eventual registration of such legal business entity and other related professional services such as securing Ph Visa, payroll, and business consultancy. He was formerly with the academe and is presently a frequent speaker of Tax and Accounting Center, Inc. and other seminar entities.

Disclaimer: This is for purposes of academic discussions only as personally summarized by the author, not of Tax and Accounting Center, Inc. and is not a substitute for an expert opinion. Please consult your preferred tax and/or legal consultant for the specific details applicable to your circumstances. For comments, you may also please send mail at info(@)taxacctgcenter.ph, or you may post a question at Tax and Accounting Center Forum and participate therein.