Plans to tax online traders is again in the news after the Bureau of Internal Revenue made a pronouncement that people who do business on the web will be subjected to tax. The initial reaction of traders is why, for online advocates taxing online sales will be a deterent to the ebusiness economy. To me, my quesiton is simple - HOW?
As the title suggest, imposing taxes on online sales will have its good and bad implications. Its very easy to determine the good side of it - additional revenue for the government. More revenue to fund worthy projects that will benefit the Filipino people in the area of education, housing, food, and others. I would like to reiterate what I just said - worthy projects and not pockets.
Another good thing going for online taxation is it evens the playing field to those who are doing big business on the web. There are those who are making millions by doing business online, much bigger than those who are doing business in the real world, and yet escape their tax responsibilities because internet transactions are not monitored so its very easy for them to getaway with it.
So I am for online taxation IF the taxes will be collected correctly and online taxes will be implemented fairly. If one of these conditions will not be met, then I will jump ship and will say NO to taxing internet sales. Why? For obvious reasons.
First of all, collecting taxes has been a big problem not only in the Philippines but all over the world. I don't think there's a magic formula ever invented yet to make sure that taxes are collected correctly. There are those who are willing to pay and there are those who just won't pay. And I must commend the efforts of the current BIR chief - Commissioner Kim Jacinto-Henares in making sure the big fishes are caught. But one person is not enough, not even the entire bureau is enough.
Now comes the challenge of taxing internet sales. There are three online classifications you can find on the web: one is B2C- business to consumer (online stores selling products to final consumers); second is C2C - consumer to consumer and; third is B2B- business to business (job recruiting, online advertising, credit, sales, market research, technical support, procurement and others).
Among the three, the C2C is the hardest to monitor. As the name implies, the transaction is between a consumer and another consumer. Transaction in a C2C varies - it can involve selling of second hand gadgets, homemade pastries, clothing, and practically anything one wants to sell. Now how can one monitor transactions like this? Payments are made in various ways like direct bank deposits or cash payments. Transactions that are based on pure trust and guts. The business nature is very personal. How can we tax transactions like this? How do we monitor them? Not to mention of course that most of these transactions comes with little revenue. So are going to tax the smaller ones and let the bigger fish go scot-free? A familiar situation?
Another challenge is the very nature of the web wherein its being non-geographic. The seller can be located in another country and the buyer is in another country. The internet is so decentralize that when taxation is implemented, online transactions will be subject to multiple taxation which will have a negative impact for both online sellers and buyers. It is almost impossible to track where this transactions are coming from.
And if online transactions like this cannot be taxed, B2C and B2B traders might just say why are we being taxed when C2C transactions are not. This is what I am referring to awhile ago - it should be implemented fairly. And of course, if in the real world there are tax evaders, it wont be surprised if tax evaders will also exist in the online world - this is what I meant by tax should be collected correctly.
Studies were also made all over the world and the conclusion is that if online transactions will be taxed, one in four would stop buying on the Web which will result to a 30% drop in online spending. Lower sales may result to job cuts - a not so good scenario that may kill an industry that is just starting.
At the end of the day, there would be pro-tax supporters and anti-tax supporters. Pro tax supporters would argue that e-tailers that would be exempted from sales taxes will have a competitive advantage over regular retailers, for obvious reasons - their products and services will be much cheaper than regular retailers. On the other hand, anti-tax supporters would argue that tax imposition will stifle the growth of ebusiness. I won't be surprise if anti-tax supporters even would argue that the Internet should remain a ''global free trade zone.''
For now, I would say its going to be very difficult to achieve a full-proof tax regulation for online transactions. A set of guidelines that will be acceptable to both pro and anti-tax supporters. I would suggest that the bureau study this undertaking carefully and come up with a win-win suggestion for all the players. Until such time, let the ebusiness industry grow some more.
I am logging off. Stay cool and God Bless!