Draft ends foreign VAT relief

Draft ends foreign VAT relief

A draft bill on e-business tax will annul the Revenue Department's value-added tax (VAT) exemption for online shopping worth less than 1,500 baht bought from foreign vendors outside Thailand.

The move paves the way for the department to tax all online purchase transactions.

At present, purchases from foreign e-commerce vendors outside Thailand are subject to a 7% VAT if the value exceeds 1,500 baht.

Revocation of the VAT exemption amount is stated in a paper slated for a public hearing of the draft bill, scheduled to close on July 11.

The paper states shopping online for products worth up to 1,500 baht from overseas sellers without an office in Thailand has become ubiquitous, and this is not fair for local vendors who must charge VAT on all purchases, even those below 1,500 baht.

Imposing VAT across-the-board for products bought from foreign sellers with no presence in Thailand will level the playing field, the paper said.

Given that online purchases are gaining momentum and the Finance Ministry is recording falling tax revenue contributed by traditional sellers, the government is seeking a way to increase its revenue by proposing a withholding tax for online purchases from foreign online vendors who do not sign up for business operations in Thailand. The tax would be in a range of up to 15%, a change from a flat rate of 5% proposed previously.

The department recently said the draft bill will require financial institutions, which now act as intermediaries for money transfers, to withhold tax for online purchases and advertising fees on social media networks, sending it to the Revenue Department.

The department will require consumers who transfer money through banking networks to fill out a form on whether it is for commercial payment purposes. The withholding tax will be remitted to the department for commercial payments, while the forms will be sent to the tax-collecting agency to check income tax payment records of the recipients.

The paper said the draft bill will authorise the Revenue Department to tax both local and foreign online companies when payments are made in baht or money is transferred from Thailand.

Foreign juristic persons that do not register in Thailand but earn income from online advertising are responsible for withholding tax at a rate of 15% and remitting it to the Revenue Department if the draft bill comes into force. Foreign e-commerce operators whose annual turnover exceeds 1.8 million baht are required to register to submit VAT payment forms.

The Revenue Department said earlier online transactions, advertising fees on social media and sites such as Facebook, Line and Google, as well as activity by ride-sharing services such as Uber are its target.

Prasong Poontaneat, director-general of the department, said Uber is not a transport service provider -- such entities are exempt from consumption tax -- but rather is a business that charges fees for a management system and is thus subject to tax. The department estimated Uber earns 2 billion baht a year.

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