E-Service Tax Act comes into pressure

One image combines the logos of Amazon, Apple, Facebook and Google. (Photo: Reuters)

Thailand will enforce the e-service tax law starting Wednesday, following in the footsteps of more than 60 countries around the world collecting value-added tax (VAT) from overseas e-service operators who generate revenue in their territories.

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

In Thailand, the Royal Newspaper on February 10th and should come into effect on Wednesday.

This law stipulates that foreign electronic service providers and electronic platforms who generate income of more than 1.8 million baht per year from providing electronic services to non-sales taxable customers in the country are required to register for sales tax, sales tax returns submit and pay the sales tax by calculating output tax.

The e-services that are subject to this law include e-commerce platforms, online advertising, online accommodation bookings, online music and film streaming, online games, and applications, according to the Treasury Department.

Accordingly, numerous large international digital platforms are now subject to this new obligation, including Apple, Google, Facebook, Netflix, Line, YouTube and TikTok.

The tax office has developed a simplified VAT system for electronic services (SVE), which enables foreign providers of electronic services to register for VAT, submit VAT returns and pay VAT electronically.

About 50 foreign e-service operators have registered through SVE, said Finance Minister Arkhom Termpittayapaisith.

He said the law would promote a level playing field between Thai operators and overseas e-service companies offering services in Thailand, as the latter are now legally required to pay VAT.

The move is also expected to bring in 5 billion baht from overseas e-service providers through VAT collection in fiscal 2022, Arkhom said.

He noted that the VAT collection will shed some light on the revenues of foreign operators in the country, which can be used to calculate any future tax regimes.

Ekniti Nitithanprapas, director general of the Treasury, said Thai vat customers who pay for e-services from overseas operators are still required to file VAT returns and can use the tax invoice as evidence to apply for pre-tax credit.


Rinlita Srirojpinyo, marketing director at eBay Thailand, the local operations unit of the US e-commerce giant, said the company had its system ready for the new e-service tax law.

The 7% sales tax is levied on sales commission fees, she said.

A spokesman for Facebook said Facebook pays all taxes required in each of the countries it operates in.

“With regard to the implementation of the new VAT law for electronic services in Thailand, Facebook worked with the tax office and communicated the changes to our advertisers,” said the spokesman.

According to Facebook, advertisers are encouraged to update their VAT number in their line item settings in their Ad Account Manager.

Facebook does not collect sales tax for Thai sales tax-registered advertisers. Instead, these advertisers have to report the sales tax themselves, estimate it and pay it to the tax office.

A Line Thailand source, who requested anonymity, said the company was ready to partner with the government’s move. The firm agrees that the law is suitable for all parties involved and Line will continue to support businesses as usual, the source added.


Panya Sittisakonsin, partner at law firm Baker & McKenzie, said the Bangkok Post The VAT regime for electronic services (TES) has been introduced in many countries and is intended to address difficulties in collecting VAT on electronic services that are provided abroad but are used domestically.

The new TES regime will require significant non-resident business collaboration, and the Treasury Department has been working closely with many large non-resident electronic service providers to ensure that the implementation of the TES regime is simplified and feasible, he said.

The law will allow the tax office to overcome major difficulties in collecting VAT on these electronic services and generate more tax revenue for the country.

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


Suthikorn Kingkaew, a project leader at Thammasat University’s Research and Advisory Institute, agreed that the level playing field policy between Thai and overseas e-service operators is good, but questions remain as to whether the measure can practically eliminate tax loopholes.

Large companies can choose to buy ads on overseas e-service platforms through subsidiaries in countries that are not subject to such VAT, with ads targeting Thailand, he noted.

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

“The tax office must ensure that tax collection and fairness are transparent,” said Suthikorn.

However, the law could encourage overseas e-service operators to register their businesses in Thailand so local expenses can be deducted from their corporate income 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 as they are already VAT registered.

However, the law could put a strain on small and medium-sized online retailers who are not registered for VAT.

“We estimate that SMBs spend nearly 10 billion baht a year on online advertising,” said Pawat.

It is still difficult to say whether this regulation would hinder digital advertising by SMEs as large overseas digital platforms could reach mass users, he noted.

Overall, however, the regulation is unlikely to have a major impact on the digital advertising industry.

He said the sluggish economy with a decline in purchasing power was the biggest factor in slowing advertising spending.

The foreign e-service platforms can still be attractive, despite higher service costs, if they can demonstrably target customers and increase sales, said Pawat.

Pawoot Pongvitayapanu, an expert on the e-commerce market, said he hadn’t seen many overseas operators register for VAT in the country.

“Questions should go to the tax office now about how these foreign traders can be used for VAT registration. In Malaysia, where a similar law has been enforced, not many have registered,” said Pawoot. “Personally, however, I think the situation is likely to get better in the long run.”