Mixed views for VAT on foreign firms

Mixed views for VAT on foreign firms

Mr Pathom says hotels registered with online booking platforms may face increasing costs as a result of the new tax regime.  (Photo by Pattanapong Hirunard)
Mr Pathom says hotels registered with online booking platforms may face increasing costs as a result of the new tax regime.  (Photo by Pattanapong Hirunard)

The government's push to collect value-added tax (VAT) from foreign digital platforms could level the playing field between domestic and foreign players, but risks increasing the service costs that may be passed on to consumers, according to industry veterans.

Concerns have also been raised on how the move could be practically enforced.

The fresh push came as the cabinet on Tuesday approved a draft bill amending the Revenue Code, which opens the door for VAT collection from foreign e-service providers.

The bill, which was proposed by the Finance Ministry, will later be forwarded to the House of Representatives for deliberation.

The bill obliges foreign e-service providers or digital platforms that earn more than 1.8 million baht a year providing digital services in Thailand to register as VAT entities.

The operators will have to submit a VAT return and pay the tax to the Revenue Department. The VAT rate stands at 7%.

Authorities believe adding foreign digital players to the VAT regime would add 3 billion baht to state coffers per year.

Natavudh Pungcharoenpong, founder and chief executive of electronic digital media platform Ookbee, supports the move, saying platforms operating in the country have to comply with the local tax regime.

"Those that operate platforms in Thailand must pay VAT, which could ensure a level playing field," said Mr Natavudh.

He remains concerned about how the government can enforce the tax on foreign operators without a Thai-based office.

For example, mobile game apps from China that are downloaded from the Apple Store or Google Play might need cooperation from Apple or Google to help collect the tax, said Mr Natavudh.

Pathom Indarodom, vice-chair of the Thai Digital Technology Association, said he supports the idea but is concerned about tax costs for foreign platforms being passed on to consumers and companies.

He said hotels registered with online booking platforms may face increasing costs as a result of the new tax regime.

Mr Pathom said it would be good if tax revenue collected from foreign operators is used to strengthen the local digital industry.

Pawoot Pongvitayapanu, founder of e-commerce platform Tarad.com, said based on the government's estimate that 3 billion baht would be added to state coffers from the move, this suggests Thais spend at least 42 billion baht a year on services provided by foreign platforms.

The VAT collection would give a clearer picture on how much Thais spend on services provided by foreign operators.

He said the challenge remains in seeing how the law would force foreign operators to register for VAT payment and pinpoint the monetary transactions.

This may require cooperation from the Bank of Thailand and the Thai Bankers' Association to track payments carried out using credit cards, said Mr Pawoot.

Paiboon Amonpinyokeat, managing partner at law firm P&P, also supports the move, saying the income comes from Thailand even though service operators do not have a base in the country. He said it is vital the VAT cost is not passed on to customers.

Mr Paiboon is also concerned about how the Revenue Department would assess foreign operators' revenue created in the country.

He said foreign operators who have representative offices in Thailand could have a fixed rate tax payment applied as the practice is done in other countries. Asking the central bank or local advertising agencies to deduct the tax before the money is wired to foreign operators is also a possibility.

Another option is for authorities to estimate their revenue from the amount of data each foreign operator has consumed, said Mr Paiboon.

The practice may need collaboration from mobile operators or internet service providers.

Ekniti Nitithanprapas, director-general of the Revenue Department, said his agency initially expected VAT collection from this law to be 3 billion baht, but "the outbreak will likely increase this collection as more people use online services during the crisis".

The law will allow the department to collect VAT from every overseas service provider that accepts membership, such as online movie streaming as well as music and game downloads, said Mr Ekniti.

Service intermediaries and online agencies, such as booking and ride-hailing platforms who charge commissions for various online-related services, together with businesses that generate revenue from advertising services on various online platforms, are also subject to this law, he said.

Meanwhile, Asia Internet Coalition (AIC), which comprises leading international internet and tech companies, expressed concerns about the bill, saying the move could push up cost for Thai customers.

The move would also jeopardise local small and medium-sized enterprises (SMEs) that rely on the foreign platforms to run business, said Jeff Paine, managing director of AIC. 

“As Thailand begins the process of reopening its economy, cost effective access to global consumers will be a crucial factor,” Mr Paine said. 

According to him, unilateral action by countries in forming national policies would hinder progress towards “a fair, simple and efficient global system.”

“AIC encourages ongoing and substantial industry dialogue to ensure legal frameworks consider diverse perspectives and industry consultation,” said Mr Paine.

He said the government should give a reasonable grace period for compliance with the changes.

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