Philippines: BIR Turns Attention To Tobacco Industry, Certain Online Merchants To Pay 1% Withholding Tax

Philippines: BIR turns attention to tobacco industry, certain online merchants to pay 1% withholding tax

The Philippine Bureau of Revenue (BIR) has imposed a 1% withholding tax on online merchants with annual sales exceeding 500,000 pesos (about 8,579 U.S. dollars) since July 15 to ensure the fairness of e-commerce taxation. The director of the tax bureau stressed that the new tax will not lead to price increases, and the BIR will strengthen supervision of the e-cigarette market to ensure tax compliance.

According to Inquirer on July 17, the Philippine Bureau of Revenue (BIR) issued a latest announcement on Wednesday, saying that tax regulations No. 16-2023 will be implemented from July 15, and a 1% withholding tax will be imposed on online merchants with annual sales exceeding 500,000 pesos (about 8,579 U.S. dollars). This move aims to optimize the tax structure and ensure tax fairness.

Romeo "Jun" Lumagui Jr., director of the Philippine Bureau of Revenue, emphasized in an interview with the media that the new tax measures will not cause online commodity prices to rise. Unlike the nature of value-added tax (VAT), this tax belongs to income tax and falls into the category of withholding tax.

Director Rumagui also pointed out that the implementation of the withholding tax will help the government keep abreast of the dynamics of domestic online transactions, and it is expected to generate billions of pesos (about 17.15 million U.S. dollars) in new revenue from large online merchants. The BIR has been communicating with online platform suppliers such as Shopee and Lazada on the withholding tax system since last year, and these platforms have expressed support and promised not to sell goods on unregistered merchants.

For foreign merchants, the BIR requires them to register as commercial online sellers in the Philippines in order to pay withholding taxes; unregistered foreign companies will face a final withholding tax rate of 25%.

Director Rumagui said that in the future, the BIR will turn its attention to the tobacco industry. Since June, all importers and manufacturers of e-cigarettes have attached tax stamps on their products; if there is no internal tax stamp on the e-cigarette product, it means that the consumption tax has not been paid, the product will be confiscated by the Ministry of Finance, and the business owner may be held criminally liable for tax evasion.