Uber, Grab Taxi/Grab Car and other Transportation Network Companies (TNCs), just like any other businesses are subject to tax. In fact, when it comes to tax obligations, unless specifically exempted by the National Internal Revenue Code or a special law, all businesses, whether online or offline, are subject to tax. But which tax? Everything applicable.
For an ordinary citizen, when considering an opportunity to earn, tax is often not considered. That is why when Uber, Grab Car and other TNCs made noise, many individuals and businesses purchased cars and tried their luck with this venture, without taking a look at the tax side of it. They’re looking at a sure profit. But in a country where the running of a government is highly dependent on collections of internal revenue taxes to sustain its operation, “what’s new” in the market always have a corresponding “what’s existing” in taxation. Thus, the Bureau of Internal Revenue (BIR) reiterates the existing NIRC provisions for this new business model.
BIR Compliance Requirements
The BIR issued RMC No. 70-2015 Reiterating the Tax Treatment of Certain Persons Engaged in the Business of Land Transportation to clarify taxation related to those operating under the TNC model. This issuance just clarifies the existing provisions of the NIRC that, similar with all other businesses, TNCs and their Partners are subject to different kinds of taxes including:
- Income tax
- Value-added tax, percentage tax or common carriers tax, whichever is applicable
- Withholding tax
Needless to say, being subject to taxes the TNC and their Partners need to:
- Register the business at their RDO
- Pay registration fee
- Secure Authority to Print official receipt
- Register books of accounts
- Issue official receipts (either manually or electronically for every sale, barter or exchange)
- Withhold required creditable/expanded withholding tax, final tax, tax on compensation and other withholding taxes
- File applicable tax returns (e.g. income tax returns, VAT returns, percentage tax returns, withholding tax returns, etc., whichever is applicable)
- Keep the books of account for prescribed period
TNCs and Partners are also reminded by the BIR of the following:
- Payments made (expenses) are not allowed as deductible expenses unless properly substantiated, evidenced by a valid OR, and withholding taxes are properly withheld
- Credit card companies to follow existing laws on taxes, including withholding from payments to TNC and Partners
- All payments received from passenger/customers must be issued with OR without the need for demand
- Non-registration, non-issuance of OR, not withholding of proper taxes are subject to both civil and criminal liabilities.
The issuance of OR mentioned hereto may be an electronic OR if the TNC or Partner issuing it uses a computerized accounting system.
The best practice here is have the TNC receive all payments from the passenger, TNC to issue e-receipts to passengers, then TNC pays the Parnter and Partner issue receipts to the TNC. We think that this is not currently the practice for Grab Car, which may make things a little complicated.
As for the riders, remind them to fulfill their tax obligations by asking for receipts.
How to Ensure Compliance?
Come to think of it. It’s making our life very complicated and to some extent, discourages people from doing business because of these tedious requirements.
Good thing that there are practicing accountants that can help the taxpayers to comply with all of these requirements for them to focus on what really matters – their businesses. But please, for you who want to engage professional accountants, do not rely solely on the “affordable fee” as the quality of work may be compromised and you will end up incurring more cost.
Please be reminded that accounting is a necessary element of business, not only to ensure that you are compliant with the requirements of the regulators but for you to know whether you are making the right decisions for your business. For some owners who don’t want to incur ‘additional cost’ of accounting, you may want to invest on training and seminars offer publicly by accredited providers. But to tell you, that is a lot of work, and may end up incurring more cost if you are not able to manage it well.
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