Airbnb’s unpaid tax bill remains a double-edged sword
Airbnb’s corporate taxes could bring in millions of baht to state coffers and set it on a level playing field with traditional hospitality operators. But taxing the online platform, now on legally dubious grounds in Thailand, could also reduce the overall benefits the Thai economy derives from it.
Like its internet economy peers, Airbnb has long operated in the Thai market untaxed. Further complicating the matter is a recent court ruling that deemed it illegal for people to rent out their rooms via Airbnb on a daily or weekly basis. Whether that ruling gains nationwide traction remains to be seen.
But even as the US-based online hospitality firm’s future remains up in the air, attempts to bring in more revenue from online operators are picking up steam. Last year, the Revenue Department began efforts to modify the tax law to include e-commerce businesses.
To maintain a fair marketplace between traditional and internet firms, no special rates will be issued for e-commerce, said Patricia Mongkhonvanit, deputy director-general of the department.
Two months ago, Alessandro Piscini, Lazada’s chief executive, announced that the Alibaba affiliate was registered and paying taxes in Thailand. It is working with the government to collect taxes on e-commerce transactions. Assuming the company’s profit margins are similar to those of Alibaba (around 80%), and that its effective corporate tax rate is 20%, then the company channelled close to half a billion baht into the state coffers. Alibaba itself paid US$1.3 billion (41.9 billion) in taxes in 2016 across all jurisdictions.
Airbnb’s estimated corporate taxes are about one-fifth of those estimated for its e-commerce counterparts. Hosts in Thailand earned a combined 4 billion baht in supplemental income, said Siew Kum Hong, Airbnb’s director for Asia-Pacific. On average, Airbnb takes something close to 10-15% of the value of a rental through host service and guest service fees.
Assuming its profit margins on this fee revenue are close to 100% and its effective tax rate is 20%, then Airbnb should have paid close to 100 million baht in taxes last year. But this number could be significantly smaller, given Airbnb’s variable profitability across markets. Overall, the company logged its first profitable year in 2017, with a 3.5% margin, according to the Financial Times.
Airbnb declined to comment on the estimate.
Together, Airbnb’s and Lazada’s estimated corporate tax could have paid for more than a third of the new, 1.5-billion-baht terminal planned for U-tapao airport.
This is not the first time Airbnb has been accused of skimping on its tax payments. In 2017, a report by the Guardian revealed that the firm had paid less than €100,000 (3.8 million baht) in taxes in France, its second-largest market.
But Airbnb is changing course, at least in some jurisdictions. According to a statement posted on its website, Airbnb now pays taxes in nine countries and 41 states.
“Read my lips: we want to pay taxes,” Chris Lehane, head of global policy and communications, said in the statement.
“Airbnb began collecting and remitting hotel and tourist taxes in a number of cities,” said Mich Goh, Airbnb’s head of public policy for Southeast Asia. “In less than three years, we have remitted more than $500 million in hotel and tourist taxes in 370 jurisdictions around the world, and we will soon collect more hotel tax than anyone in the world, including Hilton and Marriott.”
A spokesperson who asked not to be named said that while Airbnb “is having ongoing conversations with authorities, we are not asserting that the company is discussing a tax with the Thai government now”.
Hospitality firms and other proponents of implementing a robust tax rate on the company say it would result in a fairer marketplace that would allow all players to compete on an equal footing with the internet giant. According to Airbnb, 1.15 million Airbnb guests arrived in Thailand, up 67% from 2016. Rivals argue that at least some of these gains were driven by an unfair regulatory advantage.
On the one hand, Minor international, an SET-listed operator of restaurants and hotels, paid 787 million baht in taxes in 2017, a 12% rate on its 6-billion-baht pretax income. On the other hand, the company is also competing with thousands of unregistered hotels and hostels, few of which pay appropriate taxes. Establishing a truly egalitarian policy may require the state to reign in these operators as well.
But competitive concerns are not the only issue. Since Airbnb does not remit taxes, it does not pay its fair share of the infrastructure used by clients travelling around Thailand.
Collecting taxes could also help the government keep track of hosts renting out spaces where it may still be illegal to do so. According to the court ruling, reported by the Bangkok Post yesterday, the platform is illegal in Thailand under the 2004 Booking Hotel Act, which requires hosts to register their properties as hotels or face penalties upward of 5,000 baht.
But while illegal on paper, the company says there are close to 64,500 Airbnb listings in Thailand, hosting more than 600,000 guests. The government could shift the substantial expense of enforcing regulation and collecting taxes from these users to Airbnb. It could also cooperate with the company to require hosts to submit proof of registration or taxation before being allowed to list.
“By collecting hotel and similar taxes from our community and remitting on their behalf, we lighten the administrative burden for governments,” Ms Goh said. “We collect appropriate local tourist taxes from guests as part of their booking transactions and remit the tax revenue directly to the proper tax administrator on behalf of hosts.”
As myriad concerns are voiced in the media, Airbnb has repeatedly emphasised the platform’s other benefits. Taxing the company like a traditional hospitality firm may not make economic sense if it will substantially reduce these ancillary benefits.
Increasing regulations has been linked directly to fewer bookings. According to UBS, regulation is one of the main drivers behind the drop. In New York and Barcelona, two cities that have become increasingly strict on short-term rentals, Airbnb has seen a 10% drop. The bank also found similar drops in San Francisco, Berlin and Paris.
Airbnb’s price point is about 50% below those of full-service hotels. But tourists looking to save via Airbnb and similar platforms can still go on to engage in activities that generate income for taxpaying entities, like restaurants and shopping centres.
Close to 75% of income and listings generated by Airbnb are outside of the Bangkok metropolitan area, infusing tourism income into less popular regions.
Airbnb may be a tool to redistribute wealth among the least favoured members of society, instead of concentrating it in the hands of a few hospitality conglomerates. According to Airbnb, most hosts on the platform are middle-class families who rent their primary residence for an average of 66 days. In Thailand, typical hosts earned US$2,100 (67,000 baht) renting out their space 29 nights a year.
But this benefit could be substantially reduced going forward, as large companies like WhyHotel snatch up entire floors of newly built luxury condominiums to list on the platform.
Moreover, some argue that Airbnb’s statistics may skew public perception of the impact they have on lower-class families. While middle-class families may account for the majority of hosts, a few larger hosts may provide the bulk of the accommodations.
According to InsideAirbnb, a website dedicated to collecting data on Airbnb listings in select cities across Europe and the US, more than 40% of Airbnb listings are held by users with more than one property on the website.
Airbnb could also damage low-income citizens by pricing them out of their neighbourhoods, an effect that some say is already in motion in developing markets. According to Edward Kung, professor of economics at UCLA, a 10% increase in Airbnb listings increases housing prices by 0.65% and rents by 0.38%.