Thailand’s tax on online trade needed

THAILAND could lose a significant amount of e-commerce income without an effective law that’s effectively enforced.

The Cabinet has approved in principle an amendment to the Revenue Code to levy value-added tax (VAT) on all electronic-commerce transactions, due to the ever-expanding share of online sales and purchases. In general, the amendment is aimed at taxing the owners of products and e-commerce platforms, especially those based in foreign countries but selling their wares to Thai consumers.

The amendment will require owners of both products and platforms to register with Thai authorities if their annual e-business transactions in Thailand exceed $54,000. This covers global platform owners such as Google, Amazon and Alibaba, as well as owners of various products and services sold online to Thai consumers.

However, there will likely be obstacles in enforcing the proposed law in Thailand, given the challenges faced by other countries in their similar e-business taxation bids.

First, enforcement is a challenge if payment platforms are not based in Thailand and not required by Thai law to collect the VAT, since most major global e-commerce platforms are based outside the country. Second, the owners of platforms and products will likely pass on the VAT burden to consumers, making items purchased online more expensive – end-users, unlike business operators, are not allowed tax credit on consumption.

In the first stage, the Revenue Department expects the owners of e-business platforms and products to register with Thai authorities and collect the VAT on their behalf. The measure will create a more level playing field for both online and offline businesses, the latter of which have been collecting VAT on behalf of the tax authorities. Due to the rapid pace of digital transformation in both economic and social areas, tax collection from traditional and offline sources is set to decrease as consumers shift their preferences to online commerce due to convenience and other factors.

In addition, foreign and Thai e-commerce platforms are all set to leverage the new technologies and consumer preferences, resulting in fresh challenges for the Revenue Department.

Unless the amendment is enacted as law soon rather than later, the country will witness a growing outflow of profits earned by global e-commerce platforms whose tax liabilities are not adequately settled.

Thai enterprises will also face unfair competition from these online operators based in foreign countries due to the absence of a tax law on their lia- bilities.

In online advertising and other services provided extensively in the Thai market by Google, Facebook and other globally popular social media platforms, an e-business tax should be manageable for juristic persons such as companies and partnerships, but small online vendors could face a problem.

It is time to lay down the legal framework to facilitate the rise of the digital economy and society, even though enforcement of the proposed law may face technical challenges in the initial stage.

Unless, a more equitable tax regime is in place relatively quickly, the growth of e-business transactions in Thailand will create a new problem for tax and related authorities due to their inability to maintain sufficient tax revenue inflows in coming years.