Thailand to Impose Digital Service Tax: Impacting Foreign Providers

• The Thai government has approved draft legislation that will allow the country to impose value-added tax (VAT) on international digital service providers.
• Those obligated to pay the VAT rate of seven percent will need to earn annual revenues exceeding 1.8 million baht (US$58,000) and must register with the Thailand Revenue Department.
• Investors will need to wait for the implementing regulations to be issued.

On June 9, 2020, Thailand’s government announced that it had approved draft legislation that will amend the Thai Revenue Code to enable the collection of value-added tax (VAT) of seven percent on foreign digital platform providers and sales of digital products (e-services).

This is set to include e-commerce platforms, online streaming media platforms, smartphone applications, and social media, among others.

Thailand becomes the latest country in ASEAN aiming to secure tax revenues from international tech companies. Singapore introduced the Overseas Vendor Registration regime in January 2020, which obligates foreign digital service providers to register and pay for goods and services tax (GST) at a rate of seven percent. Meanwhile, Malaysia also issued its digital service tax (DST) in the same period, mandating foreign tech companies to pay a tax rate of six percent.

Indonesia recently issued a regulation to collect VAT from e-commerce services while the Philippines’ government is deliberating legislation to do the same.

The draft legislation has been sent to the parliament for approval and the Ministry of Finance is expected to issue the implementing regulations for investors and the public.

Who is obligated to pay?

Under the upcoming regulation, any e-platform operator and e-service provider earning more than 1.8 million baht (US$58,000) annually, must register as VAT operators with the Thailand Revenue Department. They will then be subject to the seven percent VAT rate.

The new regulation will be in line with the guidelines set by the Organization for Economic Cooperation and Development (OECD), an intergovernmental organization founded in 1961 to stimulate world trade and economic development. Nearly 140 countries in the OECD are drafting new tax rules to cater to the rise of digital platform providers.

The country has mulled the idea of taxing foreign tech companies and providers for years, and it seems the COVID-19 pandemic has accentuated concerns surrounding the issue, particularly as Thailand’s forecasted 2020 GDP has fallen from 1.8 percent to -0.3 percent.

The government hopes to gain some 3 billion baht (US$95 million) through this latest initiative, hoping to tap into one of the fastest-growing internet economies in the region. The country’s internet economy, according to a report by Google, Temasek, and Bain & Company, will be worth US$50 billion in 2025 compared to US$16 billion in 2019.

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