Taxing taxis in the Internet age

The effects of the unfortunate traffic situation on the lives of Filipinos, particularly those living in Metro Manila, is undeniable. Day in and day out, we suffer through what is known as “rush hour” (which now lasts for hours) on our way to work and on our way back home. With the holiday season looming, the traffic jams will inevitably extend even beyond the “normal” rush hours. To this end, many of us turn to modern Internet-based transportation solutions using mobile apps, including Uber and GrabTaxi, both of which allow their users to easily find a ride amidst the chaotic traffic that has become the norm nowadays.

Cognizant of the popularity of these online transportation apps, the Bureau of Internal Revenue (BIR) released Revenue Memorandum Circular No. (RMC) 70-2015 dated Oct. 29, 2015 to deal with the “tax incidence of the business of land transportation, particularly transport network companies (TNCs), such as but not limited to the likes of Uber, GrabTaxi, their Partners/suppliers and similar arrangements”.

The RMC characterizes the persons involved in these transportation arrangements as follows:

• TNCs, who facilitate accessibility of land transportation vehicles to the riding public (e.g., Uber, GrabTaxi);

• Partners, who operate the vehicles used in transporting passengers; and

• passengers or customers.

For tax purposes, the RMC differentiates TNCs and/or Partners who are holders of Certificates of Public Convenience (CPC) from those who are not. If a TNC or Partner holds a CPC, they shall be classified as a “common carrier” and therefore subject to the 3% common carriers tax (CCT) under Section 117 of the Tax Code. Otherwise, they shall be classified as “land transportation service contractors” and therefore subject to the 12% value-added tax (VAT) or to the 3% percentage tax (the latter applies to Partners with gross receipts not exceeding P1,919,500 who opt not to be VAT-registered).

Like any other business, TNCs and Partners are mandated to register with the Revenue District Office having jurisdiction over their principal place of business, pay the corresponding registration fee, secure the required Authority to Print (ATP) official receipts, and register and maintain books of account.

The BIR also emphasized the TNC’s/Partner’s responsibility to issue registered official receipts (ORs) to the passenger, either manually or electronically. The type of OR to be issued depends on the recipient. A VAT OR must be issued if the payment is received by a VAT-registered TNC/Partner. On the other hand, a non-VAT OR must be issued by a TNC/Partner classified as a common carrier or by a Partner that does not opt to be VAT-registered.

In addition to the transaction of the TNC/Partner with the passenger, the RMC also covers the transaction between the TNC and the Partner. The same rules on issuing ORs as discussed above will apply.

Lastly, the BIR reminds TNCs and Partners to properly withhold taxes as required under existing tax regulations and to file the appropriate tax returns and required attachments (e.g., Summary List of Sales/Purchases for VAT-registered taxpayers; Alpha List of Payees for withholding taxes).

With the surge in use of transportation apps, the issuance of this RMC was a matter of when, not if. While the RMC aims to clarify the taxation of land transportation arrangements, it also raises some concerns that may call for a deeper examination of such arrangements. For instance, the RMC recognizes situations wherein a TNC may be a holder of a CPC. Normally, per Memorandum Circulars issued by the LTFRB earlier this year, TNCs are granted Certificates of TNC Accreditation, not CPCs (a separate LTFRB circular imposes the CPC requirement on the drivers/operators accredited by TNCs). On this note, the RMC explicitly states that an Accreditation issued by the LTFRB is not equivalent to a CPC. Harmonizing these circulars, perhaps the BIR is contemplating instances wherein TNCs are not acting as mere conduits between passengers and drivers/operators, but where they also own and operate vehicles that provide transportation services to passengers.

Another interesting point to note is that in one BIR ruling issued in 2004, the tax authority appears to have had a different view when it held that a taxpayer in the hotel industry can be considered a common carrier subject to the 3% tax with respect to one of its lines of businesses: renting out its vehicles to the public (not only to hotel guests). Although merely incidental to the hotel’s business, the ruling states that the 3% CCT still applies to this particular line of business of the hotel, even if it had not been issued a CPC.

Understandably, Internet-based land transportation services -- arguably the taxis in the Internet age -- are a novel concept. In fact, the LTFRB only came up with the regulations and guidelines covering this new type of service less than six months ago. The BIR’s effort to clarify the taxation of parties under this new business model is noteworthy, but there is an apparent need to gain a better and more thorough understanding of these services. More evident than ever, the drive to provide taxpayers with guidance should be a bigger objective than the goal of merely collecting additional revenues, lest the tax authority discourage an industry positively contributing to transportation, a sector where our government has long been quite lacking.

Marion D. Castañeda is a senior consultant at the Tax Services Department of Isla Lipana & Co., the Philippine member firm of the PwC network.

(02) 845-2728

marion.d.castaneda@ph.pwc.com

The views or opinions expressed in this article are solely those of the author and do not necessarily represent those of Isla Lipana & Co. The firm will not accept any liability arising from the article.

source:  Businessworld