E-service tax law comes into force

E-service tax law comes into force

The Revenue Code Amendment Act, published in the 'Royal Gazette' on Feb 10, is scheduled & to come into operation on Wednesday

An image combines the logos of Amazon, Apple, Facebook and Google. (Photo: Reuters)
An image combines the logos of Amazon, Apple, Facebook and Google. (Photo: Reuters)

Thailand will enforce the e-service tax law from Wednesday, following in the footsteps of more than 60 countries around the globe which collect value-added tax (VAT) from foreign e-service operators reaping income in their territories.

These countries, including Australia, New Zealand, Japan, Taiwan and South Korea, comply with guidelines ushered in by the Organisation for Economic Co-operation and Development (OECD) to enhance VAT collection for cross border services.

In Thailand, the Revenue Code Amendment Act, which paves the way for the collection of VAT from foreign e-service providers, was published in the Royal Gazette on Feb 10 and is due to come into force on Wednesday.

This law stipulates that foreign electronic service providers and electronic platforms which receive income of more than 1.8 million baht per year from providing electronic services to non-VAT registered customers in the country are obliged to register for VAT, file VAT returns and pay VAT by calculating output tax.

According to the Finance Ministry, e-services subject to this legislation include e-commerce platforms, online advertising, online accommodation booking, online music and film streaming, online games as well as applications.

Accordingly, scores of major international digital platforms now fall under this new obligation, including Apple, Google, Facebook, Netflix, Line, YouTube and TikTok.

The Revenue Department has developed a simplified VAT system for e-service (SVE) that enables the foreign e-service providers to register for VAT, file VAT returns and pay VAT electronically.

Some 50 foreign e-service operators have registered through SVE, said Finance Minister Arkhom Termpittayapaisith.

He said the law would foster a level playing field between Thai operators and foreign e-service firms providing services in Thailand as the latter is now obliged to pay VAT in line with the law.

The move is also expected to bring in 5 billion baht from foreign e-service providers through VAT collection in the 2022 fiscal year, Mr Arkhom said.

He noted VAT collection will cast a light on income the foreign operators earn in the country, which can be used for calculation for any tax regime that could come up in the future.

Ekniti Nitithanprapas, director-general of the Revenue Department, said Thai VAT-registered customers who pay for e-services provided by foreign operators still have to file VAT returns and they can use the tax invoice as evidence for claiming input tax credit.

GIANT DIGITAL PROVIDERS

Rinlita Srirojpinyo, head of marketing at eBay Thailand, the local operating unit of the US e-commerce giant, said the company has its system ready for the new e-service tax law.

The value-added tax of 7% will be collected from sale commission fees, she said.

A spokesman for Facebook said Facebook pays all taxes required in each of the countries the firm operates.

"Regarding the implementation of the new e-services VAT law in Thailand, Facebook has been engaging with the Revenue Department and providing communications to our advertisers on the changes," the spokesman said.

According to Facebook, advertisers are encouraged to update their VAT registration ID under their advertising accounting settings found in their Ad Account Manager.

For Thai VAT-registered advertisers, no VAT will be charged by Facebook. Instead, these advertisers are required to self-report, assess and pay VAT to the Revenue Department.

A source from Line Thailand who requested anonymity said the company is ready to cooperate with the government's measure. The firm agrees that the law is suitable for every stakeholder and Line will continue to support businesses as usual, the source added.

COOPERATION NEEDED

Panya Sittisakonsin, partner of law firm Baker & McKenzie, told the Bangkok Post the VAT regime on electronic services (VES) has been implemented in many countries and is designed to tackle difficulties in collecting VAT on electronic services that are performed abroad but used domestically.

The new VES regime will require significant cooperation from non-resident entities, and the Revenue Department has been working closely with many major non-resident electronic service providers to ensure that implementation of the VES regime is simplified and feasible, he said.

The law will allow the Revenue Department to overcome major difficulties in collecting VAT on these electronic services and result in more tax revenues being generated for the nation.

"Although most major non-resident electronic service providers are likely to comply with this new VES regime, one of the remaining challenges is how to convince small and medium non-resident electronic service providers to comply with this new VES, which should create a level playing field for all Thai and non-Thai electronic service providers," Mr Panya said.

PRACTICALITY CONCERNS

Suthikorn Kingkaew, a project leader at the Thammasat University Research and Consultancy Institute, agreed that the policy is good for a more level playing field between Thai and foreign e-service operators but questions remain whether the measure can practically deal with tax loopholes.

Large corporates may opt to purchase ads on foreign e-service platforms through subsidiaries located in the countries where there is no such VAT requirement with ads targeted to be shown in Thailand, he noted.

Meanwhile, the tax could increase advertising costs shouldered by small and medium-sized enterprises (SMEs) who still have no choice but to continue to advertise through foreign platforms.

"The Revenue Department needs to make sure there is transparency for tax collection and fairness," said Mr Suthikorn.

The law, however, could encourage foreign e-service operators to register their business in Thailand so expenses incurred locally could be used for deduction from their corporate income tax.

Pawat Ruangdejworachai, president of Media Intelligence (MI), a media planning and creative agency, said local advertising agencies and advertisers are not affected by the law as they are already VAT-registered.

However, the law could take a toll on small and medium business online merchants, who are not registered for VAT.

"We estimate SMEs' spending on online advertising amounts to nearly 10 billion baht per year," said Mr Pawat.

It is still hard to say whether this regulation would hinder digital advertising from SMEs as major foreign digital platforms can reach out to mass users, he noted.

But overall, the regulation is unlikely to have much impact on the digital advertising industry.

He said the sluggish economy with a decline in purchasing power is the biggest factor for a slowdown in ad spending.

The foreign e-service platforms can still be attractive despite higher service cost if there is proof they can reach out to target customers and boost sales, said Mr Pawat.

Pawoot Pongvitayapanu, an e-commerce market pundit, said he has not seen many foreign operators register for VAT in the country.

"Questions should now go to the Revenue Department on how to draw in these foreign operators for VAT registration. In Malaysia where a similar law has been enforced, not many have registered," Mr Pawoot said. "However, personally, I think the situation is likely to get better in the long run."

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