Online Barters: To Tax or Not To Tax
Unlock your phone. Open Viber or Facebook. Go to a group which has the word “marketplace” in its name. What do you see? Is that taxable?
With the persistence of quarantine restrictions, online modes of acquiring goods have been popular to a lot of Filipinos. Online shopping has even expanded from the usual big e-commerce websites like Shopee and Lazada, to small chat groups on different social media platforms like Facebook and Viber. Usually, these chat groups allow people in the same area or location to avail of products from other people near them. Essentially, they allow neighbors to trade among themselves in order to lessen the need to go out and far for household items and other necessities.
Along with this, a rise in barter trading has also been seen and noted in the past few months. With barter, instead of paying for the goods in cash, people exchange one item for another of about more or less the same value. These scenarios have been reported early on during the start of the quarantine period, when some necessities became hard to come by. For instance, people with a stock of alcohol bottles would trade them for canned goods; people with a surplus of face masks would trade them for rice; and so on. As expected, this trend raised legal questions, the most important being: is barter trading taxable?
Those who adhere to the thought that barter trading should be taxed point to the provisions on value-added tax (VAT) of the National Internal Revenue Code, otherwise known as the Philippine Tax Code, Section 105 of which states that persons who “sells, barters, exchanges, leases goods or properties, renders services, and xxx imports goods” shall be subject to VAT. VAT is a tax on consumption levied on specific enumerated activities in the Philippines, one of which is barter. Thus, according to some, VAT should be imposed on barter tradings.
However, this issue has since been cleared and clarified. The answer, according to the Department of Trade and Industry (DTI) Secretary Ramon Lopez is this: it depends. That is, it depends on whether or not such barter trading is part of the regular course of business.
Pursuant to Section 105 of the Tax Code, regular course of business means “the regular conduct or pursuit of a commercial or economic activity.” Thus, as pointed out by Trade Secretary Lopez, “[K]apag ito ay negosyo na talaga at above P3 million, talaga ho kailangan ng tax.” The necessary implication is that if the barter trading is not a business transaction but instead a personal transaction, then such barter trading is not taxable.
In fact, in the same interview, Trade Secretary Lopez mentioned that “kung personal exchange ito, magkakapitbahay o magkakaibigan, below the radar screen naman yan, hindi naman yan kasama sa pinag-uusapan nating business that has to be taxed.” Thus, personal transactions that involve barter trading may continue without the threat of being illegal or being taxed.
It should be noted that barter trading, even if done in the regular course of business or trade may still be exempt from VAT if the amount of annual gross sales or receipts does not exceed three million pesos (Php 3,000,000.00). This is in view of Section 109(BB) of the Tax Code which exempts businesses earning less than the threshold amount from being taxed.
So the next time you find yourself wondering whether or not you should pay a tax for your barter trade or purchase, just remember two key phrases: (1) regular course of business, and (2) above Php 3,000,000.00.