Thailand’s cabinet, on 25 October 2021, approved a draft decree to regulate digital platform service businesses to maintain financial and commercial stability and to prevent damage to the public, a government spokesman said.
Such businesses, both in and outside of Thailand, will need to notify the government before operating, the spokesman said in a statement. The law will apply to various digital platform services including online marketplaces, social commerce, food delivery, space sharing, ride/car sharing and online search engines, he said. The spokesman also noted that they are all increasingly important to the economy and society, so there is a need to oversee them.
Since 1 September 2021, Thailand has followed in the footsteps of many countries in imposing a value-added tax (VAT) charge of 7% on non-resident digital service providers. It is a significant step for the country in capturing revenue created by the digitalisation of the economy.
The ‘e-service tax’ obliges non-resident digital service providers that earn over THB1.8 million per year to pay the VAT. The department expects around 100 foreign e-service providers to register to pay VAT in Thailand during the initial stage of tax enforcement.
So far, about 70 foreign e-service operators have registered, of which 20 are giant online platform operators. Since the tax is not a direct tax on income but an indirect tax via VAT, some e-service providers are likely to pass the tax burden onto customers. As such, those who pay the tax are not those e-platform operators but local end-users.
However, some doubt remains about how effective the tax scheme will be. The department is faced with several questions. How can the Revenue Department verify the amount of VAT that those foreign digital platform providers have to pay? What can the government do if they fail to pay the tax, especially when several operators have no physical presence?
E-service tax can ensure fairer treatment for local digital service providers who bear a higher cost burden as they are obliged to pay VAT. However, as the digital economy is growing, VAT collections alone might not ensure fair competition.
While other foreign businesses and investors including local digital service providers pay Thai corporate tax on income, non-resident digital service providers do not have to as they are not physically present in Thailand. So, these service providers still have an upper hand.
Digitalisation and the digital economy are continuing to grow. Figures by DataReportal show that there were 48.59 million internet users in Thailand in January 2021. The number of internet users in Thailand increased by 3.4 million (+7.4%) between 2020 and 2021. Internet penetration in Thailand stood at 69.5% in January 2021.
There were 55.00 million social media users in Thailand in January 2021. The number of social media users in Thailand increased by 3.0 million (+5.8%) between 2020 and 2021. The number of social media users in Thailand was equivalent to 78.7% of the total population in January 2021. Moreover, device ownership also grew and diversified.
These statistics highlight the fact that a growing digital economy requires a comprehensive and effective tax and regulation strategy, which is now in the works in Thailand.
