Digital tax developments in South-East Asia

Taxamo rounds up the latest developments in relation to potential digital tax rule changes across the South-East Asia region. Malaysia follows Singapore's lead with digital tax announced in its 2019 budget as Thailand's cabinet approves draft legislation.

Nov 23, 2018

Since Japan (October 1, 2015); South Korea (July 1, 2015), followed by Taiwan and India less than two years later (May 1 and July 1, 2017, respectively), more and more countries in Asia, particularly South-East Asia, are investigating the possibility of extending their consumption tax rules to cover supplies from foreign digital service suppliers. During 2018 Singapore and Malaysia revealed plans to start taxing cross-border digital service supplies from the start of 2020.

malaysia-digital-tax-plan-2018

Guidelines from the Organisation for Economic Cooperation and Development (OECD) are consistently cited by tax authorities in the region as they plan legislative redesigns. More often than not this citing translates into the introduction of a simplified registration system for foreign digital service suppliers as they become liable for the collection and remittance of VAT/GST on their digital sales to consumers in the relevant South-East Asian countries.

Here we round up the latest developments as they relate to digital taxation across the South-East Asia region.

Malaysia

Implementation date: January 1, 2020 

Malaysia introduced a digital tax in its 2019 budget on November 2. 

Malaysian finance minister Lim Guan Eng announced the changes during his 2019 Budget speech saying: “For imported online services by consumers, foreign service providers will be required to register and remit related service taxes to the Malaysian customs, effective January 1, 2020.”

The country's new Deputy Finance Minister Datuk Amiruddin Hamzah had previously indicated such a move at the launch of a new World Bank report titled 'Malaysia's Digital Economy: A New Driver of Development'. At the launch Amiruddin Hamzah stated: “This will definitely be a matter that we will look into deeply. We will come out with a new mechanism, but we are still studying it and we will impose something for them. If we put this matter (digital tax) aside, I think the nation will be losing revenue.”

More here.

Singapore

Implementation date: January 1, 2020 
From January 1, 2020, foreign-supplied digital services will be subject to Singapore GST. The extension of Singapore’s GST system to cover these services will have a significant impact on foreign-based service providers with customers in Singapore. From the start of 2020 these providers will need to collect and settle Singapore GST.

From this date, these cross-border B2C and B2B digital service supplies will be subject to Singapore GST. In implementing these rules Singapore will mirror popular tax rule changes that have been introduced across the globe as the taxation of the digital economy gains popularity.

More here.

Thailand

Thailand's cabinet has approved draft legislation on "collecting a 7% VAT from foreign vendors and e-commerce platforms buying and selling in Thailand" according to a July 2018 report.

The next step is that the draft legislation will be forwarded to Thailand's Council of State (the government’s legal advisory body) after which it will be submitted to the National Legislative Assembly for debate. For this reason the date of implementation of this proposed 7% VAT on foreign-based digital companies is unclear.

As per usual, we will update you as we get more information on Thailand's plans.

Some background: in March 2018 Thailand’s Ministry of Finance was reported to be “pushing a draft bill on an e-business tax, a levy on online purchases, advertisements and website rent in Thailand” earned by foreign-based digital service providers. In April 2018 Thailand’s Revenue Department then commenced a process of communicating with stakeholders who provided important feedback to a recent public hearing held in relation to the proposed legislative change.

Indonesia

Back in February 2017 the Indonesian government revealed a draft regulation designed to tax non-resident OTT (Over The Top) digital service suppliers to level the playing field between domestic and international OTT service suppliers.

More recently, at the March 2018 G-20 gathering in Buenos Aires, Argentina, Indonesia’s Finance Minister Sri Mulyani Indrawati urged international cooperation in attempts to tax digital giants such as Google, Facebook, Twitter, Amazon, Uber, Lazada and Grab.

Sri Mulyani also raised the issue of unfair competition between digital companies, particularly in e-commerce, and conventional ones, particularly in terms of tax treatment.

“All finance ministers face similar technical issues on how to collect {…} fair taxes in the digital economy,” she said.

In April 2018, at the 32nd ASEAN Summit in Singapore, Indonesia’s Minister of Trade Enggartiasto Lukita followed up on his colleague’s G-20 urgings by proposing a tax on goods and services offered through electronic commerce. According to Antara News the goods and services mentioned will include (among others) “e-books, digital music, accounting services, and architecture services.”

It is clear that Indonesia is on the cusp of introducing a tax on the digital economy. We will, of course, keep you updated on all developments there.

Philippines

In mid-February 2016 it was revealed that the Philippines Bureau of Internal Revenue (BIR) was drawing up plans aimed at taxing the digital economy.

The services covered in any potential piece of legislation would attract value-added tax (VAT), the current VAT rate in the Philippines is 12%.

The BIR has been set the task of collecting P2.026 trillion (circa USD$42.6 billion) in taxes this year, P2.315 trillion (circa USD$48.6 billion) in 2017, and P2.558 trillion (circa USD$53.8 billion) in 2018.

Vietnam

The place of consumption rule is already in place in Vietnam. However, VAT is withheld at source by the Vietnamese party to the contract. This applies unless the foreign contractor has registered for tax purposes in Vietnam.

Vietnam is also assessing its options in relation to extending taxation of the digital economy. The Vietnamese Government has already stated that they back the OECD’s BEPS proposals and their next step is to choose their approach.

According to various reports the Vietnamese tax agency has liaised with other entities, such as banks, to obtain information about unreported transactions by non-resident digital companies. The targets of this particular move are social media sites and messaging services.

Taxamo content is created for guidance only, please consult your local tax advisor.

◀ See more insights

Next Steps

Our practical approach to VAT/GST compliance

Benefits that meet your unique business needs

Flexible integration options