The last time BIR issued a circular, Lazada was a year old and Southeast Asia’s e-commerce was exploding. The 2013 circular ordered online sellers and e-commerce platforms to register with the bureau, file income taxes and withhold VAT on sales. Shopee entered the market in 2015—first as a consumer-to-consumer play then eventually rivalling Lazada—and soon, social commerce picked up.
A frequent refrain of e-commerce advocates is that new and emerging digital businesses need to be free from certain government regulations to grow. The lack of sales tax provides online stores a great advantage over brick-and-mortar ones.
But that argument doesn’t hold for governments when most transactions move online.
“Online stores are in no way being taxed unfairly. All individuals and businesses are subject to the same types of taxes.”
TAXUMO CO-FOUNDER AND CEO
Yet, local online sellers lose out to overseas sellers who do not remit VAT on their sales, a merchant on Lazada and Shopee tells us on condition of anonymity for fear of retribution from authorities.
While VAT makes a product less attractive, it also legitimises it. As online transactions grow at a rapid pace, scammers have become commonplace online. Legitimising sellers builds trust and confidence among buyers on platforms.
“Many sellers are getting discouraged because of the BIR’s order,” says Murang Gulay’s Valdez. “But I feel it’s about time that stores are required to register because of growing complaints about bogus sellers.”
There’s also a significant upside for sellers. Jason Dela Rosa, founder of Resellee, an affiliate marketing and dropshipping startup, says registering your business helps you land big contracts. “Corporate buyers who buy in bulk require their vendors to issue official receipts. If your business is not official, you miss out on the chance to earn more.”
Income tax returns are also a requirement to get bank and government loans, notes EJ Arboleda, the co-founder and CEO of Taxumo—a BIR-accredited electronic tax software provider (ETSP). “Small sellers need capital to scale,” he tells us, adding that wildly popular online shopping festivals like Lazada’s 11.11 offer sellers the opportunity to do that. But you can’t maximise your gains on those days if you don’t ramp up production, he adds.
Of course, only registered businesses are eligible to apply for government tax breaks and subsidies.
Can’t do it alone
Some analysts are sceptical about the ability of tax authorities to keep up with every single person selling their wares online.
“Online is simply a reflection of what exists in the offline world: small stores don’t report all their taxes,” Jason Ding, a partner at Bain & Company, China, previously said.
If the BIR wants to assess online sellers on Lazada and Shopee, it can ask those marketplaces to file information on those who engage in a certain value of sales a year, according to Tsai.
Shopee has declined to answer a detailed set of questions from us for this story. Lazada, meanwhile, responded with: “Lazada has been consistent in complying with the government’s laws, issuances and regulations, and we will continue to cooperate with the relevant government bodies.”