Tax exemptions for small and medium enterprises (SMEs)

There are several tax breaks that small and medium enterprises (SMEs) can avail of. --- Due to travel restrictions, the volume of online transactions during the quarantine period has dramatically increased. This prompted the BIR to release RMC No. 60-2020 (see RMC No. 75-2020 for the update on this) to remind online sellers of their obligation to register as taxpayers and pay the corresponding tax dues.

Negative reactions have flooded the social media because of this. But did you know that this is NOT A NEW RULE? There is gray area for cross-border digital transactions, yes, but they are still covered by the provisions of the National Internal Revenue Code (NIRC) of 1997 (Tax Code).

Section 23 (A) of the NIRC, as amended, provides that all resident citizens of the Philippines are taxable on ALL INCOME derived from sources within and without the Philippines. This includes income generated from online selling.

Don’t sweat over the amount of taxes to be paid as there are several tax breaks that small and medium enterprises can avail of, such as but may not be limited to the following:

1. VAT exemption for sellers with gross sales or receipts of P3M and below – subject to 3% percentage tax instead of 12% VAT 2. 8% income tax rate on gross sales or receipts in excess of P250K and 3% percentage tax exemption if you availed to be taxed at this income tax rate; and 3. Income tax exemption for registered Barangay Micro Business Enterprises (BMBEs)

As for the taxation of cross-border digital transactions (i.e., Netflix and Spotify subscriptions, Facebook and Google Ads, and many others), this remains unclear. Hopefully, the current bill sponsored by Rep. Salceda (House Bill 6765) brings light to this as non-resident foreign corporations derive unscathed income on said transactions from the Philippines while local small and medium enterprises, despite the tax reliefs, are burdened by administrative tax compliances.

We hope this enlightens everyone on the controversial digital taxation. As always, take deep breaths, read, and understand before reacting to any news during this difficult time.

#TaxBreak with #VPA