In pursuit of the lost tax revenue

The National Legislative Assembly last Tuesday approved Revenue Department amendments requiring banks and other financial institutions to report money transfers above Bt2 million per recipient per year to authorities. This will lead to a potential new tax liability for many online retailers, especially small-scale ones, because they have been avoiding taxes in recent years due to the department’s lack of a database on electronic payments for online sales of goods and services.
According to the department, there will be more scrutiny on online vendors as well as other businesses when the number of money transfers reach 400 or more per recipient per year.
The amendments follow a rapid rise in e-commerce, mobile commerce and social commerce in Thailand over the past several years, resulting in the potential loss of tax revenues payable by online retailers. Based on statistics from Eshopworld, there are currently 12.1 million e-commerce users in the country, with an additional 1.8 million people forecast to be shopping online by 2021. That year the number of online shoppers in Thailand will reach an estimated 24.5 per cent of the total population. Thailand’s total e-commerce revenues covering all product categories are forecast to reach US$5.3 billion in 2021, with electronics and fashion products the top two categories in online sales.
In addition, the high penetration in Thailand of social-media platforms such as Facebook has led to a significant increase in social commerce, which currently accounts for about half of the online sales of goods and services. These figures clearly support the Revenue Department’s case for tighter rules and regulations to levy taxes on the fast-growing online marketplaces, especially in view of the stagnant or even declining tax revenues from other sources that have faced competition from online vendors.
However, the bigger issues facing the Revenue Department appear to go beyond the latest amendments, largely because the country’s digital economy has been expanding rapidly while multiple traditional businesses and industries face disruption. Online advertising revenues, for example, have increased sharply, and yet they cannot be taxed properly because most of the revenues are booked overseas, outside the tax authority’s jurisdiction. The same is true for other Internet-based platform services whose payment gateways are outside the country.
These are among the new challenges for the tax authorities. They will need to plug new loopholes resulting from the digital economy’s phenomenal growth. And the shift will likely occur at an even faster speed in the next few years as Thailand adopts the fifth-generation (5G) cellular network. The National Broadcasting and Telecom Commission has said it plans to hold an auction for 5G spectrum soon and expects the service to be available in 2020.
Last Tuesday’s approval of the Revenue Code’s amendments therefore serves as the beginning of legal alterations designed to empower authorities to catch up with changes in technology as far as tax collection is concerned. After tightening the rules on small online vendors, the Revenue Department is expected to move further to rein in the bigger operators in the digital economy, whose business models are unlike those of traditional enterprises. Again, the tax authority needs more innovation to stay relevant.