Good start on digital tax
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Good start on digital tax

Over the past few years, concerns have been raised that the traditional tax structure is unable to catch up with rapid growth in the digital economy. Digitalisation has weakened the ability of governments to collect tax as a result of cross-border transactions.

Some transactions worth huge amounts of revenue are generated in the country by international digital service providers or online platforms without any obligation to pay tax in Thailand.

While the Covid-19 pandemic has hit global economies and businesses alike, the digital services sector seems to be emerging relatively unscathed. The outlook for the digital economy is impressive.

Since Sept 1, Thailand has followed in the footsteps of many countries in imposing a value-added tax (VAT) charge of 7% on non-resident digital service providers. It is a significant step for the country in capturing revenue created by the digitalisation of the economy. Despite that, many challenges lie ahead.

The so-called e-service tax obliges non-resident digital service providers that earn more than 1.8 million baht per year to pay the VAT. The department expects around 100 foreign e-service providers to register to pay VAT in Thailand during the initial stage of tax enforcement.

So far, about 70 foreign e-service operators have registered, of which 20 are giant online platform operators, including Netflix, Facebook, Spotify, Viu, Agoda and Tiktok.

Since the tax is not a direct tax on income but an indirect tax via VAT, some e-service providers are likely to pass the tax burden onto customers. As such, those who pay the tax are not those e-platform operators but local end users.

In adddition, some doubt remains how effective the tax scheme will be. The department is faced with several questions. How can the Revenue Department verify the amount of VAT that those foreign digital platform providers have to pay? What can the government do if they fail to pay the tax, especially when several operators have no physical presence?

It is true that the e-service tax can ensure fairer treatment for local digital service providers who bear a higher cost burden as they are obliged to pay VAT. However, as the digital economy is growing, VAT collections alone might not ensure fair competition. While other foreign businesses and investors including local digital service providers pay Thai corporate tax on income, non-resident digital service providers do not have to as they are not physically present in Thailand. So, these service providers still have an upper hand.

In this scenario, it is not easy to impose a direct tax on these providers as it could make Thailand a target of trade protectionism. In March, the US threatened to impose tariffs against some countries. The US Trade Representative (USTR) recommended trade actions against Austria, India, Italy, Spain, Turkey, and the United Kingdom as it claimed digital services taxes adopted by these countries discriminate against US companies. The Organisation for Economic Co-operation and Development (OECD) has spent several years seeking conclusions on a taxation agreement regarding cross-border digital services but has yet to reach a global consensus.

Thailand, however, should prepare an effective mechanism for tax treatment and plug loopholes to respond challenges posed by the digital economy. VAT enforcement on non-resident DSPs would be a good start but the country still has a long way to go to properly capture the rise on the digital economy.


Bangkok Post editorial column

These editorials represent Bangkok Post thoughts about current issues and situations.

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