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The problem with disruptive digital upstarts

The problem with disruptive digital upstarts

THURSDAY, May 17, 2018

Thailand doesn’t yet have a way of taxing or regulating online travel agencies

Digital and related technologies have been disrupting many sectors of the Thai economy, triggering long-term consequences in the areas of taxation and the way people do their jobs, among others. 
Take tourism as an example: The industry now accounts for more than 10 per cent of Thailand’s GDP and employ millions of people. Over the past few years, global tourism has been undergoing a massive digital transformation, resulting in the emergence and rapid growth of online travel agencies (OTAs). If it isn’t already, the government should be pondering how to properly tax these platforms, which for now remain outside the Thai taxation system.
OTAs are generally travel websites that sell hotel and destination bookings to consumers, as well as flights, car rentals and specific activities at the destination. According to Pongpanu Svetarundra, permanent secretary at the Ministry of Tourism and Sports, the government has been losing a significant amount of tax revenue because the online operators – which earn commission fees of up to 35 per cent on hotel room bookings – are still exempt from paying taxes.
In Thailand, hotels and other forms of accommodation generally account for 30 per cent of tourist spending. That adds up to about Bt1 trillion per year, based on the 30 million foreign visitors arriving here annually.
Like other sectors, the travel industry has been shifting to digital for years to better meet the needs and preferences of travellers. Digital and related technologies make reserving a hotel room more convenient, so consumers around the world have turned to OTAs, which tend to keep prices lower than those offered at traditional agencies. The improved convenience and cheaper prices have boosted hoteliers’ reliance on OTAs, which can therefore in turn ask for a relatively high commission for booking their accommodations. 
In Thailand’s major tourist destinations, the average price of a hotel room is currently around Bt2,300 per night, while a hotel room in secondary destinations costs about Bt1,000. Tourists go to an OTA or similar website for accommodation choices and other services, checking for bargains and best deals, and they have their credit cards at the ready.
The online payment system is mainly outside Thai jurisdiction because most operators are based in Singapore. Thai authorities will have to find a new and effective way to levy taxes on these operators, who are meanwhile disrupting both the taxation system and the business of brick-and-mortar travel agencies.
In fact, OTAs are just one example of how the digital economy disrupts established economic sectors. Grab Bike, an on-demand motorcycle-taxi service, is facing strong opposition from the customary motorbike-taxies in Bangkok, who are losing out to the new digital platform. As part of the so-called “gig” economy, which sees more people working part-time as freelancers, the Grab Bike model allows any motorcycle owner with free time to pick up paying fares. Consumers can book a ride in advance and do so with confidence since there is price transparency, safety and tracking features, none of which traditional motorbike-taxi services offer.
So Grab Bike is disrupting Bangkok’s long-established motorcycle-taxi service just like the OTA service is causing headaches in the tourism sector. Thai regulators and tax authorities will have to adapt quickly to cope with these new challenges.