Tone-deaf BIR trips over a peso to pick up a centavo

IN what has to be one of the most ill- timed and insensitive decisions made during the Wuhan Virus crisis, the Bureau of Internal Revenue (BIR) issued this week a directive that online sellers must register their businesses and pay the legally mandated taxes, including taxes on past transactions, by July 31 or risk penalties for tax avoidance.

BIR Revenue Memorandum Circular 60- 2020, which was dated June 1 but only released to the public on Wednesday, orders “all persons doing business and earning income in any manner or form, specifically those who are into digital transactions through the use of any electronic platforms and media, and other digital means, to ensure that their businesses are registered pursuant to the provisions of Section 236 of the Tax Code, as amended, and that they are tax-compliant. These shall include not only partner sellers/merchants, but also other stakeholders involved, such as the payment gateways, delivery channels, internet service providers and other facilitators.”

The BIR’s point of view, dutifully parroted in this paper’s editorial on Saturday, is that since online commerce is taxable, it is simply carrying out its revenue collection mandate, and the fact it has not exerted any particular effort to do so with respect to online businesses until now is neither here nor there. As the government’s revenue streams have been severely constrained by the pandemic and the need to virtually shut down the economy to try to contain it, the BIR is simply acting responsibly to try to capture every bit of tax revenue to which the government is legally entitled, and that it is doing so just at the time when online business is exploding is purely coincidental.

Besides, as government officials trying to mollify an angry public were quick to point out on Thursday, those earning less than P250,000 annually are exempt from paying taxes anyway, so the smallest entrepreneurs should not be troubled by the BIR directive, apart from being required to properly register their businesses.

It is true that online businesses, even those “buy and sell” businesses done casually by individuals through social media platforms, are required to be properly registered and pay applicable taxes, just as any other more conventional kind of business. There has never been an exemption from those requirements, in fact, and the only reason there has been one in practice is due to a lack of rigor on the part of the BIR.

It is also true that the government is experiencing a serious cash crunch, one worse than it generally admits to the public, and that it needs to maximize its revenue streams to be able to respond to the public health and economic crisis. Therefore, “running after” out-of-work citizens creatively trying to make ends meet by selling things in Facebook groups is, in a literal sense, entirely appropriate.

The BIR’s directive may be justified, but it is not in any sense practical, for a couple of obvious reasons, which this paper, in its fawning editorial on Saturday, could have done some worthwhile public service to highlight.

First, there is a question of whether focusing on tens of thousands of low- value taxpayers is the most efficient way for the BIR to gather the revenues the government needs. Many critics have accused the BIR of giving a free pass to the universally detested POGOs (Philippine offshore gaming operators) that, according to the government’s own prior statements, owe billions in due taxes. It may not actually be the case that the BIR is ignoring that issue, but that is the perception, and so if it is going to “run after” small taxpayers, the only way it can hope to do so without encountering a great deal of defiance is to demonstrate that it is putting most of its effort into properly collecting from the biggest sources.

From a practical standpoint, the administrative cost of dealing with many thousands of small taxpayers is relatively much higher than dealing with a few large ones. Since the government is in the midst of a cash crunch, cost-effectiveness in carrying out any policy should be a top priority.

Second, the BIR directive may inadvertently aggravate the economic downturn. Online commerce is one of the few things that has ameliorated the negative effects of the months- long lockdown and kept the economy ticking over. Since many of those affected by the BIR directive are doing business informally, a very likely response to it would be for those entrepreneurs to simply stop. A further drop in any sort of economic activity is something the country should avoid at all costs, particularly now when it is just beginning to reemerge from its lockdown paralysis.

It would be unreasonable to suggest that the BIR should simply overlook online business as a source of tax revenue, and legally, it cannot. It can, however, pursue the matter in a way that is less punitive and better encourages online entrepreneurs to regularize their businesses, as well as maintain the spirit of relieving tough economic conditions for average citizens. One way to do that, albeit one that would have a considerable one-time cost, would be to forego the reporting and tax payment requirements on past transactions: maintain a firm deadline for compliance, but acknowledge that since it didn’t bother to do its job prior to that date, it won’t penalize those who cooperate with it doing its job now.