VAT on digital transactions
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RECENTLY, the government issued a statement describing its desire to extend for at least one more year the reduced 7-per-cent VAT rate (from the 10-per-cent statutory rate) that is due to end next month.
Allowing the value-added-tax rate to increase will have definite effects on end consumers and could slow domestic spending, which would be contrary to the government’s objective of stimulating the economy.
While the government’s objective is to stimulate a slowing economy, it still must remain focused on revenue collection.
Collectively, extending the reduced VAT rate of 7 per cent for another year, making permanent the reduction of the corporate-income-tax rate to 20 per cent, and a proposed increase of allowance deductions for personal income tax in 2017 would require the government to seek significant new sources of tax that can compensate for its loss of revenue.
A loss in revenue from reduced tax rates is often compensated by an increase in the tax base made by improving tax compliance and revenue collection under the existing laws governing income tax and indirect taxes. The introduction of new laws that will establish new sources of revenue is another possibility.
Since the start of 2016, a number of new laws have been introduced and proposed aiming to create fairness, reduce income disparity and increase the state’s revenue in the long term.
Because of the increase in online spending, the Thai Revenue Department (TRD) recently formed a team to focus on e-commerce and digital business, areas where it believes it can improve VAT compliance and revenue collection to expand its tax base.
The TRD’s focus also includes customer-to-customer transactions, which can be worth millions of baht. It is highly likely that the authority will focus not only on domestic operators, but also on cross-border transactions.
At present, VAT is imposed on sales of products when tangible products are delivered in Thailand and VAT can be collected. When purchases are made online from an overseas supplier, VAT is imposed when the goods arrive in Thailand.
Meanwhile, digital products, such as songs, content and games, are currently only subject to VAT in Thailand if the seller is a local operator and has annual revenue equal to or greater than Bt1.8 million.
Up until now, the TRD has found it difficult to collect VAT on transactions involving digital products sent across international borders, because of the goods’ intangibility and the TRD’s lack of detection measures. If a foreign digital commerce operator does not have a taxable presence in Thailand, it is not required to become a VAT registrant here.
However, a digital product is still subject to VAT in Thailand if it is utilised in Thailand. It is the responsibility of the payer of income in Thailand to self-assess VAT and remit such VAT to the Revenue Department.
In practice, VAT may be missing if the buyer of a digital product is an individual. Thus this will likely be a focus issue.
Benjamas Kullakattimas, the author, is head of tax at KPMG in Thailand.
