Revenue treads carefully into VAT collection from tech giants
Legal challenges await the Revenue Department’s plan to collect value-added tax (VAT) from cross-border e-services for the first time in Thailand, given the threat of counter measures from the US as in the case of France despite the difference in what they entail.
Facebook has recently blocked news content in Australia over a planned law requiring the tech giant to pay for content on its digital platform.
Targeting leading service providers such as Facebook, Google, Apple, Line, Netflix and TikTok via an amendment to the Revenue Code, the collection will come into force in Thailand on September 1 this year. The amendment has been published in the Royal Gazette.
Hailed as a business model, digital technology has taken hold in today’s corporate transformation, especially in the services industry. Operators can either provide direct services to individuals around the world on the Internet or through platforms acting as an intermediary between service providers and customers. The technology allows individuals to easily and conveniently access electronic services – games, music, and movies – provided by foreign operators.
In 2020, Thailand had a population of over 69 million with an online penetration rate of a high 75 per cent . The Global web index survey data showed that more than 50 per cent of Thais aged between 16 to 64-year-old had access to online videos, music, and radio, leading to rapid growth in the online e-service market.
Online music grew 9 per cent , online video game rose 7.8 per cent while online advertising surged 16 per cent during the year.
Aiming for a level playing field
Under the current Revenue Code, domestic e-service providers must register for VAT and file return at a tax rate of 7 per cent whereas foreign providers or electronic platforms providing the same types of service to Thai customers are exempted from doing so.
This has created an uneven playing field between domestic and foreign operators, says an official of the Revenue Department, adding that other countries operating a VAT system face similar issues.
In a concerted effort to adjust the imbalance of payment , a number of countries opted to implement the guidelines of the Organisation for Economic Cooperation and Development(OECD) which requires foreign service providers or foreign electronic platforms to register and remit VAT to tax authorities in the countries where their customers are based.
More than 60 countries and territories with a VAT-collection system, including Australia, New Zealand, Taiwan, Singapore, and Malaysia have now introduced new VAT law or its amendment in alignment to the OECD’s guidelines.
What types of business are subject to the new law?
Business operators and platforms providing e-Services such as downloadable movies, games, stickers, music streaming, online advertising space and media with a minimum annual income from providing such services of more than Bt1.8 million are required to comply with the law.
To mention a few, global operators such as Apple, Google, Facebook, Netflix, Line, YouTube, and Tiktok are legally bound to abide by the new VAT regime.
Consumers to shoulder extra cost
“Global giant platforms are expected to shift their extra tax burden to consumers or producers — they will not shoulder the cost themselves,” said Sakon Varanyuwatana, chairman of Thailand’s Trade Competition Commission.
However, Facebook, Google and Apple among other major players will retain the upper hand over local platform operators, given their much larger trade volumes and market shares relative to Thai e-Service providers, he added.
Collecting taxes from these major players will be an uphill battle since transaction data and relevant information are kept overseas, Sakon explained.
Risk of retaliation from US government
Tax registration will begin on September 1, says Ekniti Nitithanprapas, director general of the Revenue Department adding that “We are currently in discussions with them (big tech firms)”. He projects to post Bt5 billion in VAT collection annually from global tech firms.
Ekniti is optimistic that Thailand will not face the same risk of trade retaliation from the US as France. Before leaving office, US President Donald Trump, threatened to retaliate against France after the country slapped a 3 per cent tax on revenue from digital services.
The Office of US Trade Representative (USTR) launched an investigation into digital service taxes in the UK, Spain, Austria, Italy, Turkey, Czech Republic Brazil, India and Indonesia last year. The US trade office said in January this year that tax laws in Italy, Turkey, and India discriminated against US companies.
So far, there is no clear sign that US President Joe Biden would retaliate by raising tariffs on French goods as well as imports from other countries which collect digital services taxes.
“Our e-Service tax is different from the French version which collects on revenue. Ours is just normal VAT,” said Ekniti.
The Thai Revenue department will only collect e-service tax on cross-border transactions whereas France imposed a 3-per cent VAT on revenue of digital services in the host country. The French law applies to companies with an annual global revenue of more than €750 million ($894 million).
It was enforced in 2019 but the French government had suspended collections while negotiations on a broader overhaul of the global tax system were being played out at the OECD, However, those talks have yet to see a breakthrough, according to CNN.
The Thai e-Service tax applies to both domestic and international firms without discrimination, says the Revenue Department.
While Thailand’s e-Service tax has yet to take off, the Australia government is embroiled in a dispute with Facebook on a planned law. Australia demands Facebook pay news publishers in the country, arguing that the giant social media company reaped large revenue from advertising at the expense of Australian news operators. Facebook has retaliated by blocking news content in the country.
Under Facebook’s new rules, Australian users are blocked from viewing and sharing local and international news, while local publishers are restricted from sharing or posting any links on their pages.
Facebook and the Australian government have since returned to the table in a fresh bid to reach a settlement.