As Featured on Philstar: Market forces

In the late 20th century and early into the current millennium, the mall may have been considered by most as the modern-day equivalent of the ancient marketplace. Much like the huge edifices where most Filipinos troop to in order to relax on a weekend, early cultures, such as the Greeks and Egyptians, evolved a specific place in their towns and cities that served as centers of commerce — where goods were bought and sold, and services offered and engaged. In some cultures, the marketplace also served as cultural and educational hubs where ideas were as traded and valued in the same way as precious metals and unique practices were developed. In fact, it is within these marketplaces that taxation and early writing were conceived. The Egyptians for example developed hieroglyphics where this unique pictorial form of early writing was used principally as a way to keep track of taxes. In fact, one can say in a way that tax gave birth to writing.

Due largely to factors such as COVID-19 restrictions, technology and the extraordinary time that we are in where people spend their day online and on social media, the marketplace has now partially, but not insignificantly, shifted away from the brick-and-mortar stores and has now gone into the virtual world. Because of the accelerated pace of technological development, today’s marketplace is enabled by electronic virtual platforms, secure payment systems and online money handling. This enables the new economy to focus on a market that is increasingly present and, in many cases, totally dependent on social media. By the time you would have read this article, the biggest online selling platforms would have cumulatively made hundreds of millions of dollars in such a short period of time. It is therefore not only understandable but expected that tax authorities will pivot towards making sure that this online economy pays its fair share of the tax burden.

In this regard, our government’s response to this is to amend Revenue Regulations (RR) No. 2-98 which is an issuance by the Bureau of Internal Revenue (BIR) that has been amended many times in its more or less 25-year existence as it embodies the rules and regulations on the obligation of taxpayers to act as withholding agents. The current system of withholding tax is designed so that income taxes can be collected at source by using the payor as its agent to collect and remit the tax. These can either be credited or refunded in the case of the creditable or expanded withholding tax or considered a final tax where no such crediting is available.

The amendment to the withholding tax regulations may be found in RR No. 16-2023 which became effective on 11 January 2023. The amendments, as they relate to the digital economy, impose a withholding tax on gross remittances made by electronic marketplace operators and digital financial services providers to sellers or merchants for goods and services sold or paid through the former’s platform or facility at a rate of 1% and imposed on half of the amount of gross remittances. The withholding tax, however, will not apply if the annual gross remittances to an online seller or merchant for the past taxable year has not exceeded P500,000 or if the cumulative gross remittances to an online seller or merchant in a taxable year has not exceed P500,000.

The implication of the new rules is that its electronic marketplace operators with a digital platform, as well as digital financial services providers with the online facility, will have the added obligation to withhold and remit the tax due from the sellers to the BIR. Failure to act as a withholding agent and failure to withhold a tax will not only place a taxpayer at risk of being assessed for penalties and interest but any also result in the disallowance of an expenses if there is a withholding tax due on the said expense.

In addition, it also means that vendors who wish to participate or are currently engaged in the digital economy will now need to comply with requirements imposed by the BIR in terms of registration with the authorities and more importantly reporting and paying the correct taxes. 

These regulations should also be read in conjunction with the recently enacted Internet Transactions Act of 2023 (Republic Act No. 11967) that seeks to promote a robust e-commerce environment and can be useful in defining terms used in the amendments to RR No. 2-98 that will be an important resource to define the coverage of the tax.

In addition, concerns have been raised on whether the requirement to act as withholding agent under the amendments should apply to non-residents who engage in business in the Philippines and whether these non-resident foreign corporations need to register with the BIR for this purpose.

While it would appear that the amendments pertain specifically to creditable withholding taxes that apply to domestic and resident foreign entities, it is understandable that with an issuance with far reaching implications, non-resident entities that do business through a digital platform may consider these developments as a red flag and may benefit from more clarity and consider seeking further advise on the matter from a trusted adviser as a prudent step to take. In the meantime, just like the way taxation gave birth to writing, it is clear that the new digital marketplace will give birth to new tax challenges for both the taxpayers and the tax authorities as the digital economy continues to expand, meeting these challenges will be a force to contend with. 

Manuel P. Salvador III
KPMG in the Philippines

Manuel P. Salvador III is a Principal under the Tax Group of KPMG in the Philippines (R.G. Manabat & Co.), a Philippine partnership and a member firm of the KPMG global organization of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee. The firm has been recognized as a Tier 1 in Transfer Pricing Practice and in General Corporate Tax Practice by the International Tax Review. For more information, you may reach out to Manuel P. Salvador III through, social media or visit

This article is for general information purposes only and should not be considered as professional advice to a specific issue or entity. The views and opinions expressed herein are those of the author and do not necessarily represent KPMG International or KPMG in the Philippines.