By Joshua Tito L. Tangca
Technology has been in a constant surge—bringing about both improvements and disruption to the normal scheme of things. It has revolutionized the business setting and people’s lives, or, at least, their daily grind, to something more convenient and comfortable. More and more processes are being automated—transactions involving buying, selling, remittance, reservations or bookings, communications, transport, among others—consolidating more aspects of everyday life within the purview of information technology.
In this modern era, e-commerce and the digital economy play a significant role in the creation of business opportunities. More people took the leap of faith and embarked on transacting business online. The turn of events may be quick, but taxation authorities are catching-up. The Bureau of Internal Revenue (BIR) has issued regulations over time to facilitate tax compliance and collection in this emerging platform.
Transactions made through the Internet as a virtual marketplace, such as online shopping or retailing, online intermediation services, online advertising and online auctions are considered no different from those transacted in brick and mortar stores or physical shops. Thus, RMC 55-2013 enjoined online businesses to comply with the existing revenue regulations as applicable to other typical establishments such as registration of the business at the Revenue District Office, securing Authority to Print invoices/receipts, registration of books of accounts, issuance of registered invoice or receipt, withholding and remittance of required creditable/expanded withholding tax, final tax, tax on compensation of employees, and other withholding taxes, filing applicable tax returns on or before the due dates, payment of correct internal revenue taxes, and submission of information returns and other tax compliance reports, maintenance of books of accounts and other business/accounting records within the time prescribed by law, and making these available for inspection and verification by the BIR.
Unbearable traffic congestion popularized ride hailing/sharing transport solutions provided by transport network companies. TNCs are a pool of transport vehicles that may be accessed through a common point of contract online, commonly with the use of mobile applications to book these vehicles for transport. The BIR issued RMC 70-2015 reiterating the tax incidence on persons engaged in land transport using this mechanism. The TNCs and their partners are considered common carriers subject to 3-percent common carriers tax on their gross receipts if they were issued a Certificate of Public Convenience. Operating without CPC would mean that they will be classified as land transportation service contractors, subject to the 12-percent VAT; or if annual gross receipts do not exceed P3 million, may be taxed under the 3-percent percentage tax at their election.
Aside from processes going online, some products are also taking on an electronic form. Unlike products that are sold in a tangible form, some electronic products may give rise to some tax issues. Books, journals, and other similar publications that appear at regular intervals, with fixed selling or subscription prices, and are not devoted principally to the publication of paid advertisements are exempt from value-added tax. The E-commerce Law of 2000 was referred to by VAT Ruling 002-08, which considered e-books, e-journals, and online academic library resources as essentially the same as those books or journals in printed form. However, a RMC issued on 2012 contradicted VAT Ruling 002-08 and subjected these electronic resources to VAT. It strictly regarded books to be printed; hence, sale and importation in its electronic form do not qualify for the VAT exemption. In a similar vein, the same confusion may arise over treatment of passive royalties from electronic books and publications—whether they fall under the 20-percent rate on final withholding tax on royalties in general or under books, literary works and musical compositions, which are subject to 10-percent tax.
Taxation authorities around the world, as well as here in the Philippines, are embracing the digitalization of tax administration. The recent enactment of the Tax Reform for Acceleration and Inclusion law requires Large Taxpayers and entities engaged in export to issue electronic receipts and invoices. As early as 2003, the idea of electronic invoicing was introduced by the BIR through RMC 71-03. Although this measure is not new, it provides us with an outlook into the transition of tax administration and compliance to a more technologically advanced state—preventing tax leakages and a more efficient and effective discharge of the tax function.
Joshua Tito L. Tangca is a Tax Associate at Reyes Tacandong and Co. He earned his bachelor’s degree in Accountancy at the Technological Institute of the Philippines Quezon City, cum laude.
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