Thailand’s online VAT tax ready to fall on online US giants as the OECD calls for a global solution
France faced the threat of retaliatory tariffs placed on its wine by the US over its digital tax under Trump but the current US President is also thought to be opposed to online taxes on US firms, at a national level, across the world. Malaysia introduced its 6% online tax at the beginning of 2020.
Thailand’s online tax is to come into effect in six months generating an expected ฿5 billion for the exchequer. The tax will fall primarily on large US-based behemoths and some Chinese firms who have now become part of everyday life in the kingdom. It comes as the OECD has expressed concern that such national taxes could become a complicating and disrupting factor in efforts to grow world trade especially in the aftermath of the economic devastation caused by Covid-19.
It is being reported in Bangkok that the official notice under the Revenue Code Amendment Act has been promulgated in the Royal Gazette relating to a new value-added tax on online sales and services in respect of foreign-based internet firms.
The new law, which has a threshold excluding very small operators or concerns, is targeted at bringing into the national tax net large internet firms such as Facebook, Google, Amazon or Netflix. These are now firms that are dealt with by millions of Thai consumers on a daily basis and yet this growing segment of the economy has been tax-free up to this point.
New tax at 7% takes effect 180 days from now
On Friday, the Director-general of the Revenue Department, Ekniti Nitithanprapas explained that the new law will take effect in approximately 180 days from now as provided for.
The Revenue boss was optimistic about its prospects suggesting officials are anticipating it could yield ฿5 billion this year instead of ฿3 billion originally estimated when the law was passed.
Mr Ekniti said his department was working with some of the firms to streamline and simplify the new digital tax collection system which will tax them at a VAT rate of 7% of net sales.
‘The department is in talks with entrepreneurs to simplify their tax payment system,’ he said.
Does not apply to Thai firms who sell abroad
The new tax will not apply to Thai firms who provide services or sell goods to most other countries in the world now as a global digital tax has not been agreed and the kingdom does not have firms within its borders that operate on such a scale.
The tax is applied where the service or product is supplied to or essentially if the customers are in Thailand then it is due from foreign firms with an online turnover in the kingdom in excess of ฿1.8 million here.
France has introduced a digital tax of 3% on very large firms while Malaysia’s internet tax came into effect at the beginning of last year at 6%.
US threat of retaliatory tariffs after France pushed through a digital tax impacting US tech giants
The French tax, passed in 2019 and implemented last year, led to threats of retaliatory tariffs on French wine by the United States under Trump but it is understood the Biden administration also opposes unilateral online taxes on US firms.
The Thai tax may, therefore, become a factor that will colour its ongoing trade relationship with the United States White House which despite the replacement of Trump as President, is still expected to oppose national efforts worldwide to tax its large online firms which dominate the internet.
European Union also wants to see an online sales tax at 3%, hoping for a pact with the United States
The European Union is in favour of a digital tax of 3% on sales and is reaching out to the United States for a compromise under Biden.
It had been thought that this may be possible but political insiders paint the new US Vice President Kamala Harris as a potential stumbling block given her close relationship with Silicon Valley in California.
It has also been noted that many of the top new officials in the Joe Biden White House are former top executives with large US tech firms.
OECD warns of the danger of national online taxes causing friction impacting overall world trade
Last year, the Organisation for Economic Co-operation and Development (OECD) formulated proposals for a worldwide tax agreed by all countries.
A summit was proposed for June 2020 but the United States withdrew citing the Covid-19 emergency.
Officials at the body however are warning that a lack of agreement on a global basis will lead to inevitable friction between countries and may end up hindering global trade not just online but across the board.
This could be potentially very damaging just as the world emerges from the catastrophic economic effects of the Covid-19 pandemic.
China considering an online tax
China is also considering the imposition of a 3% levy on internet sales which would have huge ramifications given the size of its internet-based economy.
Thailand had long considered the tax and prevaricated but it is understood the huge shift to online activity and the closure of the real economy last year prompted the government not so much to expand the tax base but to shift where market activity has decisively moved.
About the Author
Joseph Anthony is an expat from Ireland who has lived in Thailand for the last decade. He has worked extensively in the media including editorial positions in Ireland and Thailand. He is focused on economic and business stories in Thailand as well as the expat lifestyle.