Bid to tax e-commerce on fast track to reality
June cabinet reading for high-impact bill
A draft bill on taxing e-commerce operators and social media networks will go before the cabinet this month, a step to ensure that the law will be enforced under the current government.
The draft bill requires financial institutions, which now act as intermediaries for money transfer, to withhold tax at a rate of 5% for any online purchases and advertising fees on social media networks and send it to the Revenue Department, said Prasong Poontaneat, director-general of the department.
The draft bill will authorise the Revenue Department to tax online transactions; advertising fees on social media such as Facebook, Google and Line; and activity by other operators such as ride-sharing service Uber.
Under the draft bill, money changing hands from online purchases for goods and services, advertising on social networking and Uber, and transfers by senders or recipients in Thailand will see the 5% withholding tax imposed.
Although these operators are not based in Thailand, under the new law they would be liable to pay tax as Thai operators do, Mr Prasong said.
He estimated the value of online purchases at trillions of baht.
In the case of Uber, he explained that Uber is not a transport service provider -- such entities are exempt from consumption tax -- but is rather a business that charges fees from a managing system and is thus subject to value-added tax (VAT).
For every 100 baht that passengers pay to Uber drivers, the driver gets only 80 baht and the remaining 20 baht is paid to Uber, Mr Prasong said, adding that Uber has never paid tax to the Thai government.
The Revenue Department estimates that Uber earns 2 billion baht a year.
Mr Prasong said the tax-collecting agency does not have figures for advertising through social media, but it reckons that roughly 10 billion baht in advertising revenue was wiped out last year and that the spending probably shifted to online media.
Pawoot Pongvitayapanu, president of the Thai E-commerce Association, said the new tax policy could slow the growth of e-commerce in Thailand, in particular social commerce among small individual merchants who sell through social media, as this group still lacks awareness of when to pay tax, particularly VAT.
Mr Pawoot acknowledged that tax collection for online merchants would make competition fairer for those who pay tax correctly.
He urged the government to prepare a system to support small online merchants, including the use of e-receipts, with tax collection details sent to the government automatically in a process similar to the one in South Korea.
Otherwise, the tax process could become a burden to small business and threaten the country's digital economy plans.
Mr Pawoot said a study by the Electronic Transactions Development Agency found that wholesale and retail sales through social commerce in Thailand worth 269 billion baht surpassed the 57 billion baht through e-marketplace and 17.5 billion baht through own websites/own applications in 2016.
Today, Facebook and Instagram are the two main channels for social commerce. Thais sell through Facebook pages, Facebook groups and Facebook Live. More than 850,000 online merchants operate via Instagram.
"Government should educate people about tax collection and offer about three months for preparation," Mr Pawoot said.
Nuttawit Polwattanasuk, co-founder of LNW Shop Co, a local e-marketplace operator, said the government should allow a grace period for online merchants before the tax goes into force.
He said VAT collection might ultimately have a negative impact if those small merchants who are unwilling to pay shift to using foreign e-commerce websites or platforms.
LNW Shop includes features like e-invoice and VAT tax calculation automatically in prices for its merchants.
A withholding tax could be irksome to foreign companies who sell services online, such as online advertising firms, as well as to social media networks, online music services and travel booking websites.