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Thailand set to join the race on taxing digital services

Jul 09. 2020
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By Nu To Van,
Sukanok Suthinan
Special to the Nation

At a time when people are spending more time at home and companies are increasingly digitising their business and shifting “online”, it may not come as a surprise that governments are looking for ways to cast their tax net on these online activities.

Much like some other Southeast Asian countries, like Malaysia and Singapore, Thailand is in the process of introducing its own version of a digital services tax.

Only June 9, the Cabinet approved a draft bill to impose VAT on digital services that require foreign digital service providers, while platforms have to register for pay VAT in Thailand. In line with guidelines from the Organisation for Economic Cooperation and Development (OECD), the draft bill focuses on providing “clarity” on VAT taken for transactions between businesses and consumers.

What does it cover and what are the key requirements?

In Thailand, the digital services tax will be in the form of VAT imposed on electronic services transactions. Based on a broad definition of electronic services in the draft bill, most online activities are expected to be covered. For instance, services related to the supplying of digital content, like online gaming, music and movie streaming, e-books, online advertising services, providing online learning courses or webinars as well as online subscriptions to news website are all likely to be covered under the new digital services tax.

Companies that are caught by this new digital tax need to register for VAT (either as a service provider or electronic platform). They can do this electronically and the Revenue Department is expected to introduce a new simplified monthly VAT return to accommodate this process. Companies required to pay this digital tax are however not required to issue tax invoices to their customers and they cannot claim any input VAT from expenses incurred in Thailand.

Who will bear the impact?

Only foreign digital service providers or electronic platforms with an annual turnover exceeding Bt1.8 million are required to register for and pay VAT in Thailand. For electronic platforms like online shopping platforms and online travel agencies, the revenue threshold would apply to two sources – revenue generated by their own platform and revenue generated from foreign digital service providers who use their platform to provide services to customers (non-VAT registrants).

Upon becoming a VAT registrant, 7 per cent VAT of the revenue generated from digital services needs to be reported and remitted to the Revenue Department on a monthly basis.

Given the relatively low turnover threshold, it is likely that most digital service providers or digital platform owners will have to start paying VAT in Thailand once the new digital services tax is introduced. The big question, of course, is who will ultimately be “paying” the VAT. Given that the service providers and platforms will not be able to recover the VAT, it may well be that Thai consumers will ultimately have to pay a higher price to receive the same digital services in the future.

So, what’s next?

The draft bill will now be forwarded to the House for further consideration. Hopefully things will be fleshed out during this process, particularly on some of the practical implementation issues. For example, the current definition of the digital services is very broad, and as mentioned earlier could cover a wide range of online activities. Whether or not this was by design or unintentional, it would be helpful for companies to clearly understand the exact digital services coverage and to assess whether they are being impacted by this new tax.

It would also be interesting to see how the Thai Revenue Department is going to enforce the new digital services tax in the future. For example, how will the Revenue Department track and audit the reported revenue by overseas service providers/platforms?

Will they require local banks to start disclosing their customer’s credit card or payment information or will they start using Multilateral Convention on Mutual Administrative Assistance in Tax Matters (MAC) with other countries to obtain this information? And what happens in case of non-compliance? Will this lead to potential penalties or will the Revenue Department simply start blocking their IP addresses?

Many practical questions still remain, and it is hoped that before the law is implemented (expected to be by 2021), these issues will at least be considered and addressed by the government in guidelines and secondary laws. But what is clear is that Thailand has jumped on the “digital services tax” bandwagon and it won’t be long before digital service providers and platforms need to start preparing for this new tax.

In our next article, we will be looking at how other countries are implementing their digital services tax, how they deal with some of the abovementioned practical issues and how companies can start preparing for this new digital services tax in Thailand.

Sukanok Suthinan

Nu To Van is partner, while Sukanok Suthinan is senior manager of tax and legal services at Deloitte Thailand.

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