Online Barter ‘Illegal’? DTI Clarifies ‘Personal Use’ Trading Guidelines5 min read
After announcing its crusade against unregistered online sellers, the Department of Trade Industry (DTI) has a new target: people and platforms involved in “online barter.”
According to Trade Secretary Ramon Lopez, trading of goods between one person to another is illegal in the country. He added that people who want to barter goods and services should register with the government and pay the appropriate taxes.
“Sa ibang lugar, hindi po allowed yung barter trade. Kailangan regular transactions tayo diyan at dapat may tax na binabayaran,” Lopez said.
Although barter is illegal in the Philippines, limited places in Mindanao such as Sulu and Tawi-Tawi are allowed by the government to trade goods. In 2018, President Rodrigo Duterte signed Executive Order 64, giving residents the freedom to engage in barter due to limited resources as well as high poverty incidence.
Lopez said that he will request state forces such as the Philippine National Police (PNP) and the National Bureau of Investigation (NBI) to crack down on people engaging in the activity and clamp down on online platforms where such activities take place.
“Ipapahanap natin yun dahil ilegal po yung activity,” he said.
Fortunately, Lopez slammed the brakes and clarified that “personal transactions” are not covered by revenue laws. In a press release by the Philippine News Agency, the secretary said that people swapping goods and services for personal reasons can freely engage in barter as long as the gross annual sales will not exceed ₱3 million.
Unclear barter laws?
With a high-ranking cabinet official announcing that barter is illegal, what does the law say about barter?
Unfortunately, laws regarding the taxation of bartered goods is unclear. According to Title IV of the National Internal Revenue Code of the Philippines:
“Any person who, in the course of trade or business, sells, barters…shall be subject to the value-added tax (VAT) imposed in Sections 106 to 108 of this Code.”
However, the code establishes a “rule of regularity” that will separate activities that are directed towards making a profit or merely relinquishing certain goods that they have.
“The phrase ‘in the course of trade or business’ means the regular conduct or pursuit of a commercial or an economic activity, including transactions incidental thereto, by any person regardless of whether or not the person engaged therein is a non-stock, nonprofit private organization (irrespective of the disposition of its net income and whether or not it sells exclusively to members or their guests), or government entity,” said the country’s tax code.
Unfortunately, the Tax Code only mentioned that the imposition of VAT only applies to people regularly engaging in such business to make profit. People who will engage in barter just to exchange their goods for another type isn’t clearly defined in the revenue law.
As for the executive order mentioned by Lopez, it only encompasses barter as a form of economic activity between residents of Bangsamoro Autonomous Region in Muslim Mindanao as well as with countries with a history of barter activity with Southern Philippines.
Under Executive Order No. 64, the government shall create a regulatory body called Mindanao Barter Council, allowing the free flow of goods within members registered with the council.
Residents living in BARMM can only trade their goods in areas called “barter ports” and the value of the items they carry must not exceed ₱10,000 or they will be subject to tax laws already.
Bartering for profit?
How does one gain something from barter, anyway? Since there’s no money involved at all and goods are directly handed off between parties, who will determine profit earned from bartered items?
In the United States, there is a clear-cut rule in determining the fair market value of the goods. To figure out the amount of the bartered good in legal tender, all parties must figure out previous transactions with the said items using hard currency. Trading parties must then report this to their revenue agency.
Not all countries try to regulate barter and make them taxable. In Spain and Catalonia, they have “barter markets” where citizens can openly bring items and swap goods with anyone without any government intervention.
In Venezuela, hyperinflation caused citizens to ditch their dollars and go back to one of the most rudimentary forms of trading. With their economy weakened by ineffective leadership, trading goods—albeit underground—became an open secret.
How to legally barter goods in the Philippines
Like what Lopez said, barter has become more prevalent especially with the proliferation of Facebook groups as well as the economic hardships brought by the pandemic. If you’re interested in swapping your unused items—but only for personal reasons—here are some tips you should follow:
- Join localized Facebook trading groups. Although you might be tempted to join as much groups as possible, quarantine guidelines have severely limited our mobility. Stick to your area as well as adjacent cities or municipalities and refrain from joining groups beyond your reach.
- Make an inventory of goods you want to let go. Inspect them for functionality problems, physical damages, and other potential issues—and declare them in your posting. Don’t lie about the condition of your items or you might get into trouble.
- Take good photos. Although your smartphone has a nice camera, make sure that there’s adequate lighting so people can see your items in full glory. Give them a view of all the angles so the transaction can be as seamless as possible.
- Exercise prudence when doing the handoff. Since we’re still under quarantine, make sure you practice proper hygiene such as masks, disinfectants, and other precautionary measures. Make sure to also do the trade in a neutral place such as a public area.