Thailand: VAT on digital transactions, possible extension of reduced rate

Thailand: VAT on digital transactions

The government of Thailand has issued a statement describing its desire to extend for at least one more year the reduced rate (7%, instead of the statutory rate of 10%) of value added tax (VAT).

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The reduced VAT rate of 7% is set to end in September 2016. Whether the reduced rate of VAT would be extended may depend on enhanced collection of VAT on cross-border digital transactions.

KPMG observation

Allowing the VAT rate to increase would have implications for consumers and could slow domestic spending (that would be contrary to the government’s objective of stimulating the Thai economy). While the government‘s goal is to stimulate a slowing economy, there still must be a focus on revenue collection. 

Extending the reduced VAT rate of 7% for another year, making permanent a reduction of the corporate income tax rate to 20%, and following through on a proposed increase of allowance deduction for individual (personal) income tax in 2017 together would require the government to seek significant new sources of tax that can compensate its loss of revenue. A loss in revenue from reduced tax rates is often compensated by an increase in the tax base made by improving tax compliance and revenue collection under the existing income tax and indirect taxes laws. The introduction of new laws that would establish new sources of revenue could be one possible revenue expansion measure. Since the start of 2016, a number of new laws have been introduced and proposed aiming to create fairness, reduce income disparity, and increase the state’s revenue in the long term. 

VAT collections

At present, VAT is imposed on sales of products when tangible products are delivered in Thailand, and VAT can be collected. When purchases are made online from an overseas supplier, VAT is imposed when the goods arrive in Thailand, whereas digital products (songs, content, and games) are currently only subject to VAT in Thailand if the seller is a local operator and has annual revenue equal to or greater than THB 1.8 million. The tax authorities have encountered difficulties in collecting VAT on transactions involving digital products sent across international borders because of the goods’ intangibility and a lack of detection measures.

Given that a foreign digital commerce operator does not have a taxable presence in Thailand, it is not required to become a VAT registrant in Thailand. However a digital product is still subject to VAT in Thailand if it is used in Thailand. It is the responsibility of the payer of income in Thailand to self-assess VAT and remit such VAT to the Revenue Department. In practice, VAT may be missing if the buyer of a digital product is an individual. Thus, this situation would likely be a focus issue.

 

Read an August 2016 report prepared by the KPMG member firm in Thailand: VAT on digital transactions

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