2019 400309

VILLAROMAN, Janine Monica D.

TAX 3S – HW2 Online Businesses

I. INTRODUCTION

There is no question that the COVID-19 pandemic has evidently affected every
person, sector, and business and trade, to the point that it actually resulted to the
closure and even bankruptcy of some.1 This historical event is something no one
expected, and no one was ready for this, not even the big players in businesses and
industries. It was only a month in quarantine when people started being creative in
their time locked in at home and started urban gardening, rearranging homes, and
getting busy in their kitchens. As a result, several people thought of selling whatever
they could offer in various online platforms, and people turned to online shopping
rather too frequently. This was not only done by private individuals, but also
established businesses who now cannot accept customers in their stores. This has
proliferated greatly, especially given the fact that people cannot go out of their homes,
and only authorized delivery services are able to transport goods and other services
from one place to another. Due to this trend, the Bureau of Internal Revenue and
Department of Finance made the public aware of the obligations these online sellers
have under the law.

II. TAXING ONLINE BUSINESSES

In BIR’s Revenue Memorandum Circular No. 55-2013, taxpayers’ obligations in

relation to online business transactions were reiterated. While the internet has become a
popular medium for the conduct of online businesses, the convenience it brings has led
people to avail of online transactions, as this can easily be done within one’s own home
or office, or any place where internet is accessible. 2 Under this memorandum, it was
stated that the existing laws and revenue issuances on the tax treatment of purchases
(local or imported) of goods (tangible and intangible) or services shall be equally
applied with no distinction whether or not the marketing channel is the internet/digital
media or the typical and customary physical medium. 3 As such, this implies that BIR

1
https://business.inquirer.net/298536/p2-2-trillion-in-losses-cost-of-covid-19-impact-on-ph-economy
2
https://www.bir.gov.ph/images/bir_files/old_files/pdf/73941RMC%20No%2055-2013.pdf
3
Ibid.
shall treat online businesses equally to physical stores and businesses. The policies and
guidelines on online businesses and transactions are laid out in the said memorandum,
as well as the obligations and duties of online merchants. Even before the pandemic hit
the country, and even before people started selling online, these rules have been applied
to existing online businesses, so these individuals who started selling during the
pandemic cannot raise the argument that the BIR is implementing this just because of
the trend. In fact, BIR is only reminding these online traders that they cannot go about
doing their businesses without complying with the law. Taxation is comprehensive, as
it covers persons, activities, professions, rights and privileges, and of course, businesses
(Dimaampao, 2018). There is no distinction on the application of law for physical
businesses and online businesses; and applying the rule of law only on physical stores
and businesses shall be unjust for these businessmen, as if rewarding the online sellers
for conducting their businesses online. In addition, under Section 1 of the Bill of Rights,
the law provides that no person shall be denied the equal protection of the law.4
Equality of taxation is accomplished when the burden of paying tax falls impartially
and equally upon all persons and property subject to tax, and that no higher or special
rate is imposed upon one person or property than upon other similarly situated or of
the same character (ibid). As physical stores are taxed, it is just and right for BIR to
impose taxes on online businesses as well.

Taxation is also said to be unlimited. As stated in the case of Tio v. Videogram

Regulatory Board, tax does not cease to be valid merely because it regulates the
activities taxed. The power to impose taxes is one so unlimited in force in extent that the
courts scarcely venture to declare that it is subject to restrictions whatsoever, except
such as rest in the discretion of the authority which exercises it. 5 The tax imposed upon
online businesses, except for those earning less than PHP250,000.00 annually, is right
and just, and is definitely in line with the primary purpose of taxation which is to raise
revenue, especially during this trying time for the country’s economy.

III. TAX EXEMPTION FOR ONLINE BUSINESSES

The power of taxation is not without limitations, because exercising such without
any restrictions may lead to the ruin of the prosperity of a nation as a result of such
pervasive power (Dimaampao, 2018). During this difficult time, the last thing a
struggling individual trying to make ends meet would want is to be taxed. Most of the
online sellers offering their goods and services on various online platforms are those

4
Art. III, Sec. 1 1987 Constitution
5
151 SCRA 208
individuals who were retrenched from their former companies, those whose sectors
cannot continue to operate during the pandemic due to the COVID-19 hazard, and
those whose profession does not fall under essential workers who can go out of their
homes. Resorting to online selling may not be their primary choice, and if given the
chance, they might choose to report to their offices and workplace instead. This
pandemic is beyond their control, and online selling has sustained them and their
families during this difficult situation.

As such, we come to the concept of taxation being exacted only for a public purpose.
The power to tax exists for the general welfare, thus, it is implied that the power to tax
comes along with the limitation that it should be used only for a public purpose
(Dimaampao, 2018). What would happen now that the general public is equally
struggling because of this unexpected, unforeseen, and uncontrolled event which has
halted almost everything, and with no certain end? Online sellers are being robbed off
of their small income which is just enough for them to get by, notwithstanding the
emergencies that may arise during this period. We cannot impose the taxing power
over these online sellers and claim that this is done for the welfare of the public, because
they themselves are the general public that the government should look after during a
time such as this. In addition, the Congress shall evolve a progressive system of
taxation.6 A progressive system of taxation shall be built on the principle of the
taxpayer’s ability to pay, as provided for by Adam Smith’s Canons of Taxation, stating
that tax shall be in proportion to the revenue which the citizens respectively enjoy
under the protection of the state (Smith, 1776). During a pandemic, one’s ability to pay
taxes is curtailed, especially given the fact that there is no certainty when this will end,
or when their work shall resume. As mentioned earlier, these online sellers are only
trying to make ends meet. If an unfortunate event happens during this time, like for
example, contracting the virus and needing medical attention, these individuals would
then again struggle to come up with enough money to fund the expenses facing them.

References

Dimaampao, J. (2018). Tax Principles and Remedies. (5th Ed.). Manila, Philippines: Rex Publishing.

THE 1987 CONSTITUTION OF THE REPUBLIC OF THE PHILIPPINES | Official Gazette Of

The Republic Of The Philippines. [online] Available at:
<http://www.gov.ph/constitutions/the-1987-constitution-of-the-republic-of-the-
philippines/the-1987-constitution-of-the-republic-of-the-philippines-article-ii/> [Accessed 30
September 2020].

6
Art. VI, Sec. 28(1)
Vera, B. (2020). P2.2 trillion in losses: Cost of COVID-19 impact on PH economy. Retrieved 1
October 2020, from https://business.inquirer.net/298536/p2-2-trillion-in-losses-cost-of-covid-
19-impact-on-ph-economy

BIR. (2013). RMO 55-2013. Retrieved 1 October 2020, from

https://www.bir.gov.ph/images/bir_files/old_files/pdf/73941RMC%20No%2055-2013.pdf

151 SCRA 208