E-commerce faces tax crackdown

E-commerce faces tax crackdown

State demands online sellers' revenue data

Ms Kulthirath says policymakers should be able to collect taxes from foreign online vendors selling products in Thailand to encourage a fair playing field for Thai vendors who pay tax.
Ms Kulthirath says policymakers should be able to collect taxes from foreign online vendors selling products in Thailand to encourage a fair playing field for Thai vendors who pay tax.

The Revenue Department's decision to require digital platforms to report revenue gained from their online merchants is expected to affect Thailand's e-commerce landscape on many fronts.

Online shop numbers on platforms might decline by 10% as some merchants might not want to divulge their actual income, according to analysts.

The measure should give the department insight into merchants' tax payments, ensuring fair competition among all local and overseas merchants.

The department made the announcement on Dec 27, 2023, requiring Thailand-based electronic platforms with revenue of more than 1 billion baht in an account cycle to set up what it calls an "electronic special account".

Enforcement is to begin in the cycle starting from Jan 1, 2024.

The special account discloses the revenue that platforms gain from their online merchants. The platforms are required to submit the special accounts to the department.

For platforms that previously reported revenue of more than 1 billion baht, but the revenue falls short in successive account cycles, they still have to keep reporting the special accounts.

The platforms are expected to be linked to the department to submit the special accounts. Platforms must submit the special accounts within 150 days after the last day of the account cycle.

GAME CHANGER

"This announcement is a game changer for the e-commerce industry," said Kulthirath Pakawachkrilers, president of the Thai e-Commerce Association.

She said it should prompt platforms to examine clues about the actual revenue of local and foreign sellers on their platforms, which could result in a 10% dip in merchant numbers this year.

Some stores may opt to close permanently or temporarily to avoid providing information about their actual revenue, said Ms Kulthirath.

Some stores might close and open in cycles so their sales do not reach the level subject to tax payment, she said.

Online sellers who always comply with tax payment rules will see more equal competition in the industry, as earlier they found it was difficult to compete on price with those who did not pay tax, said Ms Kulthirath.

"Online sellers who have never paid tax must understand the Revenue Department is not taking advantage of them," she said.

Ms Kulthirath said online sellers with multiple sales channels might rely more on social commerce such as Facebook, Instagram and Line, as they might not be subject to the department's announcement.

Some online sellers who decide to fully comply with the tax payment rules might decide to increase product prices to cover higher tax costs at the expense of consumers, she said.

Ms Kulthirath encourages consumers to shop at sites that follow the law to ensure the sustainability of the e-commerce sector.

Authorities should be able to collect taxes from foreign online vendors who sell products in Thailand, ensuring a level playing field for Thai vendors who pay tax, she said.

WHAT IS HAPPENING

Paul Srivorakul, group chief executive of aCommerce, an e-commerce enabler based in Southeast Asia, said the announcement could have a significant impact on existing and new players in the market.

"First, we need to understand why the regulators imposed these new regulations. The goal is to combat cross-border merchandise that is hurting local brands and businesses, especially small and medium-sized enterprises [SMEs]," Mr Paul said.

"This supervision of trade allows the Revenue Department to better understand what is actually happening on online marketplaces. Up until this point, they did not have a clear indication of how much of the trade was happening with local or international merchants."

Once the department obtains this type of data, the regulators are expected to start demanding marketplaces prioritise Thai merchants.

This will affect overseas merchants' revenues, local product diversity and market competitiveness, he said.

For new players looking to enter the Thai market, this change requires much consideration, especially if their model relies heavily on manufacturing in China, said Mr Paul.

For consumers, this could mean potential price hikes by local sellers who will later find it difficult to compete with cheap products from China, he said.

"The Revenue Department is approaching this very systematically and with a smart phasing approach: first by looking at the data and the highest impactful sellers, then assessing the severity of the situation before taking action," said Mr Paul.

For current cross-border merchants, if their business has proven to be lucrative in Thailand, this may encourage them to enter the market through distributors or partners and conduct the business through a local entity, he said.

This achieves what the local authorities have been striving to accomplish, said Mr Paul.

For merchants that are not ready or willing to take that step, the use of bonded local warehouses or duty-free warehouses is a potential workaround, he said.

This requires either the marketplaces or local e-distributors to develop capabilities to serve customers from a bonded warehouse on a business-to-customer basis, said Mr Paul.

The impact of the measure is more long-term for top sellers and major enterprises outside of Thailand, he said.

However, online shopping is more than just price competition, but also convenience and selection of available items, said Mr Paul. Down the road, this could lead to even more convenience if cross-border merchants choose to export products and use a local entity to cut delivery times, he said.

"We can look forward to a normalisation of prices where a lot of brands are struggling to find healthy margins because of intense competition," Mr Paul said.

THE TAXMAN COMETH

Thanawat Malabuppha, honorary president and advisor to the Thai e-Commerce Association, said the announcement shows both online and offline sellers must pay taxes, paving the way for the department to access data about online sellers via their platforms.

Business operators with sales of more than 1.8 million baht per year that registered for value-added tax might feel the greatest impact as a result of the measure, with some possibly closing down their storefronts rather than complying with the tax payments, said Mr Thanawat.

He said while some social media platforms will not be affected by this announcement, eventually they will be made to adjust.

Mr Thanawat said policymakers need to encourage Thai merchants to sell on a cross-border basis to the Southeast Asian market. The Indonesian government supports local SMEs that sell products to Thailand via the Shopee channel, he said.

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