I.

ABOUT ONLINE BUSINESS

We live in a time where everything can be accessed through the World Wide
Web. With the use of high-tech gadgets, phones and computers are no longer used for
mere communication, but also for different transactions such as online retailing, online
banking, online shopping and the like. Given the continuing advances in information
technology, the internet has become the vogue medium not only for business
advertisements but also for the conduct of online business transactions, including online
retailing through virtual shopping malls, online market places, web stores, and similar
websites or online stores. Online business is commonly referred to as electronic
commerce or e-commerce. It refers to a wide range of online business activities for
products and services. It also pertains to any form of business transaction in which
the parties interact electronically rather than by physical exchanges or direct physical
contact. It is usually associated with buying and selling over the Internet, or conducting
any transaction involving the transfer of ownership or rights to use goods or services
through a computer-mediated network. An increasing number of consumers are visiting
and purchasing goods and services from such online stores primarily because of the
high level of convenience inherent in online shopping which can be done within the
confines of ones home, office, and even in public places offering internet access.
There are different kinds of online business transactions classified as to their
participating parties as business to consumer which involves online stores selling goods
and services to final consumers, consumer to consumer and business to business
which encompasses job recruitment, online advertising, credit, sales, market research,
technical support, procurement and different types of training.
The most common types of online business transactions in the Philippines are
online shopping or online retailing, online intermediary service, online advertisement
and online auction. Online shopping or online retailing is a form of electronic commerce
whereby consumers directly buy goods or services from a seller over the internet
without an intermediary service. An online shop, e-shop, e-store, internet shop, web
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shop, web store, online store, or virtual store evokes the physical analogy of buying
products or services at a bricks-and-mortar-retailer or shopping center. Online
intermediary service is a third party that offers intermediation services between two
trading parties. The intermediary acts as a conduit for goods or services offered by a
supplier to a consumer, and receives commission therefore. In this case, the
relationship between the intermediary and the merchant shall be that of a principalagent relationship which shall be governed by their agreement including but not limited
to the amount of commission and manner of transmitting the same. Online advertising is
a form of promotion that uses the internet to deliver marketing messages to attract
customers. Online auction is conducted through the internet via an online service
provider that specifically hosts such auctions. Through this service, the seller sells the
product or service to the person who bids the highest price.
Online business has allowed firms to establish a market presence or to enhance
an existing market position by providing a cheaper and more efficient distribution chain
for their products or services. Some of the advantages online business has for the
consumers are providing convenience and wide array of selection. It can take place
twenty-four hours a day, seven days a week. Many stores offer a wider array of products
online than they do in their brick-and-mortar counterparts and stores that exist only
online may offer consumers a selection of goods that they otherwise could not access.
However,

it

has

also

disadvantages

for

consumers.

It

has

only

limited customer service. If you want to buy a computer and you are shopping online,
there is no employee you can talk to about which computer would best meet your
needs.
There is also no instant gratification. When you buy something online, you have to wait
for it to be shipped to your home or office. These online businesses cannot provide to its
consumers the ability to touch and see a product. Online images do not always tell the
whole story about an item. These transactions can be dissatisfying when the product
the consumer receives is different than expected.

One of the most evident benefits of online business or e-commerce is economic

efficiency resulting from the reduction in communications costs, low-cost technological
infrastructure, speedier and more economic electronic transactions with suppliers, lower
global information sharing and advertising costs, and cheaper customer service
alternatives. As we can see in the figure, e-commerce is a growing industry in the
Philippines. Facts about the figure shows that products and services that were sold
online in the Philippines make up most of the e-commerce buzz in the country. Majority
of these mentions were about airlines and travel-related services. Nearly two out of ten
of all the conversations were about customer support, which include interactions
between the official social media accounts and the companies customers. Promotions
constitute four percent of the total e-commerce discussions, which include promo
announcements, discounts, freebies and coupons. Conversations about payment
amount to one percent of the total e-commerce mentions. Most of these were inquiries
about online payments. One percent of all the discussions were about deliveries that
were made for online purchases. The greatest numbers of these were about awareness
of such service. Also, one percent of the buzz around e-commerce is general ecommerce articles such as corporate news, mergers, and acquisitions of businesses.

II. TAXING ONLINE BUSINESS

With the emergence and popularity of electronic commerce, the number of
opportunistic and innovative entrepreneurs has increased, making use of such medium
for trading and attracting prospective customers. For some business, adoption of the
technology is not a choice but rather a requirement so that the business can prosper. In
keeping with the advances in technology, the government has also updated its laws and
regulations to govern these kinds of online transactions. Under the current
administration, there has been serious formulation and implementation of policies as
opposed to the imposition of additional taxes and charges geared towards greater
revenue collection. On this point, high regard should be given to the growth of ecommerce

relative

to

tax

revenue

collection.

However, monitoring and tax collection problems arise in the case of online
importation of goods by households or end-consumers. With the emergence of various
social networks, many consumers can now import directly from foreign merchants.
There is no audit trail in the case of such electronic transactions because individuals
who are not engaged in business are not required to keep books of accounts. Even if
the importers are engaged in business, it may be difficult to levy taxes on them since
online stores operating through the varied social networks may exist without registration
and necessary government permits from the Department of Trade and Industry (DTI) or
Securities and Exchange Commission (SEC), as the case may be. Thus, domestic laws
on taxation should be applied strictly by the Bureau of Internal Revenue.
The Revenue Memorandum Circular No. 55-2013 is issued by the Bureau of
Internal Revenue (BIR) on August 5, 2013. This circular reiterates taxpayers obligations
in relation to online business transactions. In issuing the circular, the BIR recognizes
that an increasing number of consumers are visiting and buying goods and services
from online stores primarily because of the high level of convenience inherent in online
shopping.

The circular emphasizes that there must be a similar tax treatment on purchases,
be it local or imported, and sale of goods or services, be it local or international and
tangible or intangible, with no distinction on whether or not the marketing channel is the
Internet or the typical and customary physical medium.
Like any other business establishment, persons who conduct business through
online transactions have the obligations to register the business at the Revenue District
Office (RDO) that has jurisdiction over the principal place of business or residence, in
case of individuals and pay the registration fee to any authorized agent bank located
within the RDO. They must secure the required authority to print invoices and receipts
and register books of accounts for use in the business. They should issue registered
invoices or receipts, either manually or electronically and withhold required creditable or
expanded withholding tax, final tax, tax on compensation of employees, and other
withholding taxes. Then, they must file applicable tax returns on or before the due
dates, pay correct internal revenue taxes and submit information returns and other tax
compliance reports. Lastly, they must keep books of accounts and other business and
accounting records within the time prescribed by law.
There are also different obligations involved for the online merchant or retailer in
the sale of goods and services. In general, if payment is made through a credit card
company, the online merchant is obliged to issue electronically the BIR-registered
invoice or official receipt for the full amount of the sale to the buyer, issue an
acknowledgment receipt to the credit card company for the amount received, and pay
the commission of the credit card company net of 10% expanded withholding tax. If
payment is made through the banks, the online merchant is obliged to issue an invoice
or official receipt to the buyer for the payment of the goods and services, and issue an
acknowledgment receipt to the bank for the amount received. For cash on delivery or
pick-up by the customer, the online merchant is required to issue electronically or
manually the BIR-registered invoice or official receipt for the full amount of the sale.

The circular likewise enumerates the different obligations and duties of the buyer
or customer and payment gateways, namely credit card companies and banks. Also, the
circular reminds taxpayers that any person engaged in Internet commerce who fails to
comply with applicable tax laws, rules and regulations shall be subject to the imposition
of penalties provided for under the existing laws, in addition to the imposition of
penalties under the National Internal Revenue Code of 1997.
The BIR or the government pushes this through with all strictness and effort
because taxation is very important for the continuous existence of a nation. It is the
primary source of government revenue that is used to effectively and permanently
perform government functions. It is exercised to raise revenue for the very existence of
the government to serve the people for whose benefit taxes are collected. These
reasons make the payment of taxes compulsory.

III. EFFECTS OF TAXING ONLINE BUSINESS

With all fairness and justice, every Filipino citizen who earns income should be
taxed accordingly and must pay their taxes. However, implementing tax on online
business has effects both in the BIR itself and the taxpayers. Online businesses are
expanding nowadays and having been increasing in its transactions, it would mean
greater revenue for the people and the country as well. This can help boost the
economy and add revenue in order to support for the expenditures of our government.
However, a vast majority of these online traders do not issue sales invoices for every
transaction, which in turn depletes the BIRs chance of collecting more revenue
from taxable transactions. Because of this, BIR have been strict when it comes to
collecting taxes especially to online businesses which is hard to tract down when it
comes to their income. BIR has been giving warning to online traders and
entrepreneurs. Commissioner Kim Jacinto-Henares has warned the public that online
businesses should be registered with the BIR. This online businesses and sellers have
to be registered and issue electronic invoices to customers. Their electronic invoicing
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should also be registered either directly to the BIR or a third-party accredited by the
Bureau. The BIR commissioner also said that even online entrepreneurs and sellers
who use their personal Facebook accounts for business transactions should register
and comply with the invoicing requirement. Online sellers or traders who negotiate on
their Facebook accounts and do business transactions on a regular basis should be
registered with the BIR and issue the necessary invoices or official receipts. And since
the transaction is made online, online traders should also issue invoices online, in which
online customers can print copies and keep them. Online sellers should register their
electronic invoicing either directly with the BIR or a third-party accredited by them. With
Section 237 of the National Internal Revenue Code, the bureau is keen on making the
taxpayers liable and accountable. Section 237 of the NIRC states that all persons
subject to an internal revenue tax shall, for each sale or transfer of merchandise or for
services rendered valued at Twenty-five pesos (P25.00) or more, should issue duly
registered receipts or sales or commercial invoices, with some provisions.
On the online traders side, with the warning issued by the BIR, the online
community composed of sellers, professionals and entrepreneurs, who are making
money online, expressed different reactions. There are those who agree on the BIRs
plan since it is just according to the law and since entrepreneurs and professionals
doing transactions offline pay taxes, online entrepreneurs and professionals should also
do the same. There are those also who comply with the law and for established online
businesses which are already registered with the BIR, the news may not affect them
much. Other BIR registered businesses that only use the Internet to promote their
products, but are doing business transactions in their physical stores or offices, might
also not be affected.
However for small online traders and entrepreneurs, the BIR plan might be
alarming. That is why there are small online earners who disagree with the BIR. To
them, BIR registration and compliance with the invoicing will be too costly considering
that they are only earning small income and some of them are only doing online
business in a part time basis or out of hobby. Most of these traders are either one-time
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or small-time sellers that transact online, which means they do not earn a recurring or
significant profit from their transactions. According also to these online traders, the BIR
should focus on running after the big fish or the big corporations which evade taxes
instead of running after small entrepreneurs. It is also possible that the e-commerce
industry in the Philippines, which is just starting to boom, will be hindered if the
government will strictly impose taxing online business start-ups. Furthermore, one of the
discouragements of the online traders to pay taxes is that entrusting hard-earned
money to the government is not practical because it will only go to the corrupt
government officials. The opponents of e-commerce taxing also will continue to argue
that taxes already exist for the acquisition and use of electronic equipment and access
to the Internet, the numbers of online businesses and employees are swelling where
most of them are taxable on their income and taxing e-commerce might spell death for
fledgling businesses. But the question before us is not about whether to tax ecommerce, but how and to what extent?

IV. CONCLUSION AND RECOMMENDATION

A citizen of the Philippines and any alien individual engaged in business or
practice of profession within the Philippine shall file an income tax return, regardless of
the amount of gross income. Every enacted law in the land must be honored by its
people, as the basic principle says, no one is above the law, whether you get your
means of living offline or online. Thus, the BIR is right to implement income and
business taxation on online entrepreneurs and professionals, who are subject to those
tax obligations by virtue of the law. Since online transaction nowadays are increasing
and making its way into becoming a big industry, the taxes that will be levied on the
online traders will be of a huge addition to the revenue of the government which is a
good thing for all of us because we are also the recipients and beneficiaries of the taxes
we pay. As the power of taxation is exercised by the government for the betterment of
the people within its jurisdiction whose interest should be served, enhanced and
protected, it is necessary that everyone benefited by it should likewise contribute for the
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betterment of the public. However, there are also important things that must be
considered by the BIR or by the government before it extends effort in running after the
online traders.
Online business can and will be taxed. The important thing is that it be taxed
fairly and efficiently just like conventional commerce. Governments will not and cannot
remain oblivious to the potential revenue derivable from taxing e-commerce. Therefore,
it will be up to the government to come up with new and feasible taxing methods which
will allow for consumers and businesses alike to easily comply with their duties as
taxpayers. New software and electronic tracking systems will be helpful in this respect.
The issue of taxing online business in the Philippines is not actually entirely new.
Perhaps the best way to address these pressing concerns is to provide easier and more
convenient ways for the people to comply. For instance, if the BIR were to work out a
system with platform providers for reporting and making payment rather than
threatening these platforms with lawsuits, it will likely encourage compliance among
online entrepreneurs. There should be clear-cut guidelines as to which kinds of sellers
will be taxed, instead of just a blanket pronouncement coming from the BIR.
Additionally, avenues for easier processing of BIR requirements and remittances and
payments should also be available, preferably online, considering the hassles
entrepreneurs must endure just to ensure they pay their proper taxes. Since we are
talking about the Internet space, these facilities also need to be online, ones that can be
easily integrated with online transactions. The government must also work on improving
online services so that online traders can directly see the benefits of paying the proper
taxes.
The government must extend its effort in disseminating applicable tax information
to online traders. As what Albert Einstein have said that the hardest thing in the world to
understand is the income tax. The thought alone that most people argue why they need
to pay taxes when they themselves cannot feel the benefits that they expected makes it
hard for them to understand income tax plus the process of filing income tax returns
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which mostly do not know how to. Most small and medium online entrepreneurs are not
aware of how the Philippine taxation system works. Most small business owners, offline
and online, do not have any idea on how to compute their taxes or even register their
business with the BIR. A number of entrepreneurs also are disappointed with the BIR
personnel who do not accommodate their questions. BIR is left behind when it comes to
educating and disseminating tax information online. They do not even utilize social
media to educate Filipino entrepreneurs and accommodate their questions. How could
online traders and entrepreneurs, who spend most of their time on the Internet, inquire
about useful tax information online if this is the case? Thus, the BIR should make a
strengthened campaign to educate online traders outside of their office or beyond their
own website.
The government, through the Department and Finance and the BIR, have to
increase effort in raising our national tax revenue. But accounting wise, the government
should also understand that they should not only concentrate on tax revenue collection
but they must also consider the cost of collection. Even if the tax authorities would
collect more than trillion pesos of taxes from taxpayers if they would spend an
unfavorable cost of collection, our nation will suffer deficit.
When it comes to running after small online entrepreneurs, who may not be even
capable of paying taxes and fees according to the theoretical justice basic principle of a
sound tax policy, some Filipinos may be right to tell the government authorities to run
after the big fish first. Why? Its more difficult and costly to focus on catching these small
taxpayers online than to concentrate on catching the big business owners who are
evading taxes. The government should consider the cost over benefit in implementing
applicable laws. The BIR should carefully analyze every move they take and determine
if it is economically favorable for the benefit of the whole country.
The BIR should also consider lowering the initial amount that it will collect from
online traders as well as the application fees so as to spur mass adoption. BIR should
not make the cost a barrier for a trader to start his own business since these online
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marketplaces have made it easy for people to set up their own small ventures,
particularly to the convenience they provide and the opportunity to closely connect with
customers. As with most other tax collection efforts, this is with the caveat that
taxpayers should be assured of the proper allocation of such proceeds for the
taxpayers welfare. The Philippine government should win the trust and confidence of
the taxpayers in order to increase voluntary compliance and cooperation in the
remittance of the appropriate taxes withheld since our system adopts the selfassessment and voluntary compliance system.
As what Mark McKinnon has quoted, I prefer for government to err toward less
regulation, lower taxation, and free markets, reflects what every citizens, especially the
traders, wants in a country he lives in. With these, they can do more than what they
wanted because there is less regulation and they can enjoy more the money they
earned because of lower taxation. This may be better for a trader but the government
would be the one suffering on the other side which could result in poor governance that
leads to a poor nation. In totality, if this happens, everyone is affected also. Freedom is
good but too much or less of it may not be good. Thus, the government and the people
should be one in achieving that freedom everyone aims for.

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V. BIBLIOGRAPHY
http://newsbytes.ph/2014/03/06/online-freelancers-need-to-pay-tax-says-ex-bir-exec/
http://www.philstar.com/business/2013/08/24/1126961/bir-wants-online-sellers-paytaxes
http://businesstips.ph/should-bloggers-freelancers-and-online-workers-pay-taxes/
http://www.alasoplascpas.com/Tax/Tax-Volume5Series32.pdf
http://taxacctgcenter.org/tax-compliance-obligation-of-online-sellers-in-philippines-rmc55-2013/
http://www.aseanbriefing.com/news/2014/10/10/understanding-how-the-philippinestaxes-online-sellers.html
http://searchcio.techtarget.com/definition/e-commerce

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