Electronic Services Tax Law Comes Into Force

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One image combines the logos of Amazon, Apple, Facebook and Google. REUTERS

Thailand will enforce the online services tax law from Wednesday, following in the footsteps of more than 60 countries around the world that collect value added tax (VAT) from foreign online service operators collecting income in their territory.

These countries, including Australia, New Zealand, Japan, Taiwan and South Korea, are following Organization for Economic Co-operation and Development (OECD) guidelines to improve the collection of VAT for services. cross-border.

In Thailand, the Revenue Code Amendment Act, which paves the way for the collection of VAT from foreign electronic service providers, was published in the Royal Gazette February 10 and is due to go into effect Wednesday.

This law states that foreign electronic service providers and electronic platforms that earn revenues of more than 1.8 million baht per year by providing electronic services to customers not registered for VAT in the country are required to register for VAT, file VAT returns and pay VAT by calculating exit tax.

According to the Ministry of Finance, electronic services subject to this legislation include e-commerce platforms, online advertising, online accommodation reservation, online music and movie streaming, online games as well as applications.

As a result, dozens of major international digital platforms now fall under this new obligation, including Apple, Google, Facebook, Netflix, Line, YouTube and TikTok.

The tax administration has developed a Simplified VAT System for Online Services (EVS) that allows foreign online service providers to register for VAT, file VAT returns and pay VAT electronically .

About fifty foreign online service operators have registered via SVE, said Finance Minister Arkhom Termpittayapaisith.

He said the law would promote a level playing field between Thai operators and foreign electronic service companies providing services in Thailand, with the latter now required to pay VAT according to the law.

The move is also expected to bring in baht 5 billion from foreign online service providers through the collection of VAT in fiscal year 2022, Arkhom said.

He noted that the collection of VAT will shed light on the income that foreign operators earn in the country, which can be used for the calculation of any tax regime that may arise in the future.

Ekniti Nitithanprapas, director general of the revenue department, said Thai VAT registered customers who pay for online services provided by foreign operators still need to file VAT returns and can use the tax invoice as proof to claim a tax. input tax credit.

GIANT DIGITAL SUPPLIERS

Rinlita Srirojpinyo, head of marketing at eBay Thailand, the local business unit of the US e-commerce giant, said the company has its system ready for the new e-services tax law.

The 7% value-added tax will be levied on sales commissions, she said.

A Facebook spokesperson said Facebook pays all required taxes in each of the countries where the company operates.

“Regarding the implementation of the new VAT law on electronic services in Thailand, Facebook has engaged with the revenue department and provided communications to our advertisers on the changes,” the door said. -speak.

According to Facebook, advertisers are encouraged to update their VAT identification number in their ad accounting settings found in their ad account manager.

For Thai advertisers registered for VAT, no VAT will be charged by Facebook. Instead, these advertisers are required to self-report, assess, and pay VAT to the Ministry of Finance.

A Line Thailand source who requested anonymity said the company was ready to cooperate with the government measure. The cabinet agrees the law is suitable for all stakeholders and Line will continue to support businesses as usual, the source added.

NECESSARY COOPERATION

Panya Sittisakonsin, partner at the law firm Baker & McKenzie, told the Bangkok Post The VAT on Electronic Services (VES) scheme has been implemented in many countries and is designed to address difficulties in collecting VAT on electronic services provided abroad but used in the country.

The new VES regime will require significant cooperation from non-resident entities, and the Ministry of Finance has worked closely with many large non-resident electronic service providers to ensure that the implementation of the VES regime is simplified and doable, he said.

The law will enable the tax administration to overcome the major difficulties of collecting VAT on these electronic services and generate more tax revenue for the nation.

“While most large non-resident e-service providers are likely to comply with this new VES regime, one of the remaining challenges is how to convince small and medium-sized non-resident e-service providers to comply. new VES, which should create a level playing field for all Thai and non-Thai electronic service providers, ”Panya said.

PRACTICE CONCERNS

Suthikorn Kingkaew, project manager at Thammasat University’s Research and Advisory Institute, agreed the policy is good for a more level playing field between Thai and foreign e-service operators, but questions remain about whether the measure can practically close tax loopholes.

Large businesses may choose to purchase advertisements on foreign online service platforms through affiliates located in countries where there is no VAT requirement with advertisements intended to be served in Thailand, he noted.

Meanwhile, the tax could increase advertising costs borne by small and medium-sized enterprises (SMEs) who still have no choice but to continue advertising through foreign platforms.

“The finance ministry needs to ensure that there is transparency for tax collection and fairness,” Suthikorn said.

However, the law could encourage foreign operators of electronic services to register their business in Thailand so that expenses incurred locally can be deducted from their corporate tax.

Pawat Ruangdejworachai, president of Media Intelligence (MI), a media planning and creative agency, said local advertising agencies and advertisers are not affected by the law because they are already registered for VAT.

However, the law could have negative consequences for small and medium-sized online businesses, which are not registered for VAT.

“We estimate that SME spending on online advertising amounts to nearly 10 billion baht per year,” Pawat said.

It is still unclear whether this regulation would hamper digital advertising for SMEs, as major foreign digital platforms can reach mass users, he noted.

But overall, regulation is unlikely to have much of an impact on the digital advertising industry.

He said the sluggish economy with declining purchasing power is the main factor behind slowing ad spending.

Foreign online service platforms can still be attractive despite higher service costs if there is evidence that they can reach target customers and drive sales, Pawat said.

Pawoot Pongvitayapanu, an expert in the e-commerce market, said he had not seen many foreign operators registering for VAT in the country.

“Questions should now be directed to the Ministry of Finance on how to attract these foreign operators for VAT registration. In Malaysia, where a similar law has been applied, few people have registered,” Mr. . Pawoot. “However, personally I think the situation is likely to improve in the long term.”

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