BIR Implements 1% Withholding Tax to Online Sellers

BIR implements a 1% withholding tax on gross remittances by e-marketplace operators to online sellers. Exemptions for low-earning sellers.

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In late 2023, the Bureau of Internal Revenue (BIR) implemented its plan to subject partner merchants or sellers in online platforms to the withholding tax system.

Tax for Online Sellers

In accordance with Sections 244 and 245 of the National Internal Revenue Code of 1997, the new revenue regulation amends Sections 2.57.2 and 2.57.3 of Revenue Regulations (RR) No. 2-98, this amendment introduces a withholding tax on gross remittances made by electronic marketplace (e-marketplace) operators and digital financial services providers to sellers/merchants for goods and services sold through their platform.

Specifically, a 1% withholding tax is imposed on one-half (½) of the gross remittances.The withholding tax is the amount deducted by a business from its payments for goods or services and remitted directly to the government on behalf of suppliers or employees.

As per the BIR, an e-marketplace is defined as a digital platform whose primary function is to connect online consumers with online merchants. It plays a role in facilitating and concluding sales, processing payments for products, goods, or services, and overseeing the transaction’s completion. 

The e-marketplace may also handle the shipment of goods, provide logistics services, and offer post-purchase support. The bureau noted that this definition encompasses platforms related to online shopping, food delivery, booking accommodations, and other service or product marketplaces. 

Moreover, according to the regulation, exemptions to this withholding tax include cases where the annual total gross remittances to an online seller/merchant do not exceed ₱500,000 for the past taxable year or if the cumulative gross remittances in a taxable year have not yet exceeded the same amount.

Additionally, merchants may be exempt if they are duly exempted or subject to a lower income tax rate as per existing laws or treaties. To qualify for exemptions, they must provide certification or documentation proving their entitlement to the exemption or lower tax rate.

The BIR stated that the RR No. 16-2023 shall take effect after fifteen (15) days from the date of its publication in the Official Gazette or in a newspaper of general circulation— as of writing news regarding this is still not published on the gazette but several online publications have already covered the story.

Previous News about Online Selling Tax

In 2022, Department of Finance (DOF) Secretary Benjamin Diokno has defended the BIR’s proposal to impose a 1% creditable withholding tax on partner-merchants of online platforms, emphasizing the importance of fairness in the tax system. 

Diokno argued that taxing online sellers similarly to regular stores is not only about revenue increase but also maintaining fairness and encouraging compliance. He believes that if people pay taxes for purchases from physical stores, the same principle should apply to online transactions. 

This article is published on BitPinas: BIR subjects online sellers to 1% Withholding Tax


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