Ecommerce has been snowballing for more than six years in Southeast Asia but yet only recently, was there any progressive movement in taxing digital transactions.

Government bodies in Thailand, Singapore and Indonesia understand the importance of taxes on ecommerce sales (products and services) in order to capture a piece of the fast growing segment and more importantly, level the playing field between its brick-and-mortar peers.

But implementing new tax regimes proves difficult given Southeast Asia’s “diverse and uncertain legal environment” explains Steven Sieker, head of Asia Pacific tax practice group.

Under existing taxation laws, only local players and not foreign companies across markets fall within local tax regimes.

“The main point is to try to tax multinational companies that are not registered in Thailand for their online business,” said Kanchirat Thaidamri, tax partner for Deloitte Thailand.

“Online is simply a reflection of what exists in the offline world: small stores don’t report all their taxes in the outside world” – Jason Ding, partner at Bain & Co, China

Below is a snapshot of the state of ecommerce tax regulations across six major APAC markets:

Ecommerce Tax in Indonesia

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In 2017, Finance Minister Sri Mulyani stated the government wanted to “level the playing field between businesses that operate online and those offline, which must add 10% Value Added Tax (VAT) to the price of goods purchased”. While the tax rate is still unknown, it is expected to be lower than 10%.

The ecommerce tax, when implemented, will cover four types of platforms: online marketplaces, classified ads, daily deals and online retail that operate in the local markets but will not be levied on sales through social networks (mainly Instagram and Facebook).

Impact? Bolster the growth of social commerce in Indonesia, a country where social media platform usage is one of the highest in the world and weaken incentive to sell on e-marketplaces like Tokopedia and Lazada. Applying a 10% VAT rate to the online sector would bring in approximately USD$1.34 billion in additional tax revenues.

The Indonesia Ecommerce Association (idEA) was discussing a 0.5% VAT from each marketplace seller at the beginning of the year with the Finance Ministry – nothing has been implemented.

“If the tax regulation restricts ecommerce platforms – making selling in Bukalapak complicated because of the tax – there will be an exodus of people who would prefer selling on Instagram and Facebook, which is uncontrolled and not chased for tax because they sell through the back door,” – Bukalapak co-founder and chief financial officer Muhamad Fajrin Rasyid.

Timeline for implementation? Public trial in 2019.

Ecommerce Tax in Thailand

ecommerceIQ
In July earlier this year, the Cabinet approved a proposal to collect 7% VAT from foreign ecommerce platforms deriving annual service income exceeding THB1.8 million (US$56,000). These businesses must sign up as operators under the VAT system to report to the Revenue Department.

The Nation reports the taxes apply to those selling goods and services on Internet platforms as well as the operators of Internet platforms such as Google, Amazon and Alibaba. Companies with an overseas presence and earning income from advertising/website space rental from Thailand are also subject to a 15% withholding tax.

Impact? Operators such as Facebook and Google could pass on the additional costs to its sellers and ad buyers, likewise with  JD Central, Lazada and Shopee customers. Smaller players could be deterred from doing ecommerce if the business cannot sustain these taxes. Currently, vendors outside of Thailand are liable for 7% VAT only if value exceeds THB 1,500 (USD$45.76).

Timeline for implementation? Government needs to forward the draft VAT bill to the Council of State (the government’s legal advisory body) before submitting to the National Legislative Assembly for a debate. Early 2019.

Ecommerce Tax in Philippines

ecommerceIQThe country is the only market out of the region with an ecommerce taxation. The 12% VAT on total value of online transactions of more than USD$37,310 came into effect in 2016 and is applicable to store owners as well. For transactions lower than the threshold, a 3% VAT is levied instead on online transactions.

Impact? Any person or entity who, in the course of trade or business, sells, exchanges, or leases goods or properties, or renders services, and any person who imports goods, is liable to VAT. The government has its own challenges enforcing these taxes on different online business models as shutting down websites only leads to another one being created under a different IP address.

Ecommerce Tax in Malaysia

ecommerceIQAs of late 2017, there is a mechanism under Malaysia’s current GST model that taxes online services provided by local companies to Malaysian consumers, but currently is not applicable to foreign service providers.

Impact? The implementation of the digital tax may mean that foreign service providers serving Malaysian consumers will be charged with tax. The service provider can pass on the tax to customers by adding it to existing prices.

Timeline for implementation? The country is likely to follow the steps of its close neighbour Singapore.

Ecommerce Tax in Singapore

ecommerceIQCurrently, any online purchase in Singapore under SGD$400 (USD$290.17) is exempt from GST. The government did not include ecommerce tax in the budget released in February 2018 but the Ministry of Finance (MOF) said “B2B imported services will be taxed via a reverse charge mechanism, while B2C imported services will be taxed through an overseas vendor registration model” according to the Strait Times.

Impact? Decrease in shopping overseas as prices could increase with the introduction of GST on ecommerce goods and services from overseas.

Timeline for implementation? While many thought the new GST would be implemented in the 2018 budget released February this year, the government has tabled a concrete tax for ecommerce until 2020. Starting January 1, 2020, consumers will pay GST when buying online services from overseas, which includes music, video streaming, apps, online subscriptions, and digital B2B services such as marketing/accounting).

Ecommerce Tax in Vietnam

ecommerceIQ

Vietnam is one of Southeast Asia’s most attractive and also nascent markets. Foreign ecommerce firms must have local representative office registered in Vietnam and pay VAT of 10%. Individual residents without an established ecommerce company in Vietnam will be subject to tax if they have annual sales revenue over USD$4,300. As of now, there isn’t heavy enforcement in place but there are plans for higher scrutiny by the National Assembly next year.

In November 2017, Vietnam’s government also released a proposal for all cross-border payments to be made through domestic gateways via the National Payment Corporation of Vietnam.

Impact? Not much concern in regards to Vietnam’s attractiveness as few companies have managed to ‘crack the local market’ and ecommerce contribution to total retail is still relatively small compared to other markets. The cross-border payments funnel will increase the tracking of tax liabilities by the National Payment Corporation of Vietnam.

Timeline for implementation? Late 2019.

Difficulties implementing an ecommerce tax in Southeast Asia

Apart from climbing over the layers of government and overcoming pressure from big corporates, and complaints from SMEs calling foul play, regulators also face the large task of enforcing such new reforms, especially concerning tax on digital services.

Products are easily tracked through physical movement in the country but services are intangible.

Axcelasia Inc Executive Chairman Dr. Veerinderjeet Singh shares: “The problem with foreign online companies is they will charge 6% GST on customers for the purchase and delivery [in Malaysia], but how will the Customs collect that amount when they don’t have offices in the country? How do you regulate that? And if they miss a few payments, how will you impose a penalty on them?”

Between now and 2020, when most implementations across Southeast Asia are expected to take root, Internet platforms and operators have little influence on the new tax policies but it’s the customers and the shift in their behaviour that will be largely impacted.

In the words of Senior Minister of State for Law and Finance Indranee Rajah, “keep shopping while you can”.

Bitcoin is the mother of all Ponzi schemes.

It will crash and fade at some point. But on the way to its inevitable death, the journey may make many more insanely rich. This is a global high-velocity bubble, the first in which the entire world can easily participate in.

And so it could be HUGE.

But it will end in tears.

Why? The problem isn’t that Bitcoin is digital. I’m cool with digital.

I do get that paper currency is nothing more than paper printed by a government.

But suppose I started a paper currency, the Asim Dollar, and stated that I legally cannot print more than 1,000,000 Asim Dollars ever, just like the cap on Bitcoin.

The question is would anyone use, or give a value to, Asim Dollars?

If I was the first person to think of this, in amongst a group of cavemen, I might get some traction but once everyone sees others making new paper currencies, the Asim Dollar will collapse.

That applies to Bitcoin too. Bitcoin is open source so it’s damn easy to copy, and those copies can be improved on, which is what we’re seeing happening.

The new copies of Bitcoin address some of the weaknesses of Bitcoin, in particular speed of transaction and the blockchain file size.

So when they’re better where will that leave Bitcoin?

Cryptocurrencies in general also have other fundamental issues. Given they’re decentralised who do you go to if your Bitcoin suddenly disappears? No one.

And can anyone give any assurance that today’s hack of US$64m of stolen Bitcoin will not be the first of many hacks? Nope.

Further, the lack of price stability makes Bitcoin far from ideal as a currency.

The only currencies that have maintained value are ones that are backed by something like gold or ones that are backed by legislation and a government.

Bitcoin is neither.

Bitcoin is a scam. And while blockchain technology has uses, it’s massively overhyped in large part due to Bitcoin itself.

The future of money is digital. But it’s not Bitcoin…

Source: Quora, answered by Asim Qureshi, CEO LaunchPad, 5 $1-10m startups (including Jibble.io)

A bit about Malaysia

Malaysia is one of Southeast Asia’s smallest nations, but that hasn’t affected its digital ambitions. In 2015, Malaysia’s ecommerce market was estimated at $1 billion and is on equal footing with Singapore in terms of market size and developed infrastructure, which may explain why the nation’s ecommerce industry is expected to increase by 8X to $8 billion within the next ten years.

It is no surprise then, that Alibaba recently announced the construction of a regional distribution hub (e-hub) that will act as a centralized customs clearance, warehousing and fulfillment facility for Malaysia and the Southeast Asian region in order to speed up clearance for imports and exports. The hub is set for a launch in 2019.

Out of the e-hub was born the Digital Free Trade Zone (DFTZ) – a joint initiative by Prime Minister Najib Razak and Alibaba Group to accelerate Malaysia’s digital roadmap that aims to double ecommerce growth from 10.8% to 20.8% by 2020.

What is the free trade zone?

In March 2017, Malaysia formally launched the Digital Free Trade Zone initiative at the Global Transformation Forum. This is the first digital global trade platform beyond China, and the Malaysian government believes that a collaboration with Jack Ma will increase SMEs’ contribution to the nation’s GDP, which currently stands at 37%, despite 97% of businesses in Malaysia currently being micro or SMEs.

The free trade zone is composed of three zones:

    1. The satellite services will facilitate end-to-end support and knowledge sharing for companies targeting the Southeast Asian market.

 

    1. The eFulfillment Hub will be connected to Hangzhou’s Cross-Border ecommerce pilot zone – Alibaba’s HQ – via Alibaba’s OneTouch platform. According to VulcanPost, it will digitise many of the trading operations like customs clearance, foreign exchange services, financing services and logistics solutions which will ease bilateral trade.

 

  1. The eServices platform is virtual and will complement the satellite services and Ma’s e-hub by digitally connecting users with government and business services.

Through DFTZ, the purchase of goods via the Internet worth $276 and below will be exempted from paying tax. Currently, goods worth $115 and below purchased online were not subjected to tax.

But what does the free trade zone really mean?

The partnership between Jack Ma and the Malaysian government was born from Ma’s concept of providing SMEs the infrastructure and overcome difficulties involved in conducting global trade – namely clearance and inspections.

If successful, DFTZ has the potential to double the growth rate of Malaysian SMEs’ goods export and create 60,000 direct/indirect jobs by 2025.

It is also estimated to support US$65 billion worth of goods moving through DFTZ.

“The establishment of DFZ would stimulate the economy as it gives room for online traders to compete in a healthy environment. Locations of the businesses will no longer be a hindrance to traders. For instance, a trader in Kota Belud would have an equal opportunity to market or sell his items, as a trader from the Klang Valley,” said Abdul Rahman, Head of Economic Planning Unit.

Although it is currently too early to quantify the benefits of the digital free trade zone, analysts have predicted that its launch will be good for the logistics sector. More specifically, for Malaysia Airport Holdings (MAHB) and postal company Pos Malaysia’s subsidiary, KL Airport Services.

The heightened connectivity should propel the growth and development of ecommerce in the region, lower trade barriers and benefit local players due to increased opportunities.

However, it isn’t simple infrastructure that Malaysia is building.

In order to create a functional logistics ecosystem that can improve regional level trade, it requires collaboration from various parties, companies and more. The success of the digital free trade zone also depends on the rate of retail growth – both offline and online in Malaysia and the region because it will need to grow in tandem with the scale of the free trade zone itself.

To leverage from the initiative, smaller players and SMEs need to scale their businesses to ensure that they are ready to utilize the ecosystem.

As this is the first time the free trade zone has ventured out of China, it simply cannot be a copy and paste of what has worked in the past with Chinese SMEs. Smaller Southeast Asian companies currently need help in shaping their businesses, along with help in lowering trade barriers.

Although the free trade zone will surely bring opportunities, SMEs will also need to be ready for 2019, as increased opportunities often come with increased competition.

After speaking with a variety of industry professionals operating ecommerce businesses in China, Thailand, the Philippines and Vietnam, trust makes its way into each conversation. Customers don’t trust merchants, business owners are weary of government power, citizens don’t trust banks, so on and so forth.  

eIQ spoke with Joseph Yuen, the Board Chairman of The Hong Kong Federation of Ecommerce (HKFEC), at Last Mile Fulfillment Asia to understand his ambitions to standardize ecommerce regulations.

The federation composes of members from Lazada, UnionPay, PwC, Shopline, etc. and exists to bridge the ecommerce associations between Europe, Russia, Dubai, and Thailand to create a stable foundation for future ecommerce businesses to land on.

“Governments didn’t have any laws in place that could govern new technology such as Uber,” says Joseph. “This shows that governments need to work with organizations like ours to fill in  gaps between booming industries and out of date regulations.”

Creating trust in a trustless Asia

It’s not surprising to learn that Southeast Asians have doubts about product reliability and safety of payment methods when news about counterfeits and financial fraud hang in daily headlines.

Reasons why consumers in Hong Kong do not shop online. Source: Consumer Council 2015

One of the initiatives HKFEC is moving towards is the creation of a “Hong Kong Trust Mark”. Much like food labels in the US – USDA Organic, Non-GMO Project Verified, etc. – ecommerce sites would have to be vetted before being granted a badge that certifies them as trustable for customers to shop.

Companies that meet all criteria agree to work with HKFEC to provide customers with a safe and reliable shopping experience.

If a sold product doesn’t meet guidelines, the idea is that the customer has the right to an investigation and refund – even if that means going to court.

“There’s been a lot of talk but no action,” comments Joseph. “We want to assume that every one is a good player so HKFEC will act as the middleman to clear this black hole and make ecommerce transparent.”

Ecommerce requires standardization

Joseph believes that there are four major areas that need to be addressed in order for ecommerce to grow healthily in Hong Kong and China.

  1. Trust – Chinese citizens fear that all online goods are counterfeit items
  2. Payments – simplified, cashless payments open up opportunities for hackers
  3. Privacy – smart data versus big data, how can businesses use their data to grow?
  4. Cross border – tax policies differ across markets, how can we align the cross-border policies?

Hong Kong, a country of over 7 million people, is an important transit point between vendors and Chinese consumers as a free port. The French Chamber in Hong Kong quotes it as “suitable for low-volume B2C ecommerce, goods for personal consumption with low cargo value and low tax rate items”.

The Trust Mark sounds good in theory, an online business gains the badge after a thorough investigation by HKFEC, customers identify badge on site and are more willing to shop knowing they will be protected. The main question then becomes, how long will this take?

Ecommerce companies in all parts of the world, especially Asia, are already moving quickly to grab market share. Consumers aren’t familiar with any badges or certifications that aim to protect them so education would also add time to the process.

“Our committee has legislative influence to give us a line to the government,” says Joseph. “The one thing that will get them acting is social pressure from our friendly alliances. We will act as the judge.”

“Guandong Electronic Commerce Association, Russia, India, Europe and the UAE are all invested in making the Trust Mark a reality.”

The effects of the Trust Mark

Joseph believes luxury brands are weary of selling online in Asian markets because customers, especially the Chinese, prefer to fly abroad to purchase goods they know are real. The goal is to keep the business within the country.

“The government should facilitate access to financing sources and terms in order to enhance competitiveness of local ecommerce operators,” said Pawoot Pongvitayapanu, president of the Thai Ecommerce Association and ASEAN Market Advisor of HKFEC.

If the badge were to come into effect, HKFEC hopes to see an increase in cross-border trade and growth in the brand.com trend. For example, companies would be less concerned about damaging their brands and sell on platforms like Tmall to reach Chinese customers if it was certified. Or they would open their own webstores to sell directly to customers.

“In every single fast moving industry, regulations and government cannot catch up,” says Joseph. “Someone has to stand in front of the court as an alliance and agree on a set of rules before standardization can happen.”

By: Cynthia Luo

Hong Kong tackles online counterfeit products with the launch of the ‘Hong Kong Trust Mark’ electronic logo, reports Enterprise Innovation.

Small and medium enterprises are expected to benefit from the initiative, launched by the Hong Kong Federation of ecommerce. Hong Kong’s retail industry offers a wide variety of goods and services. However, due to the rampant selling of fake goods online, a lot of consumers feel reluctant of buying goods on the internet.

The Hong Kong Trust Mark is recognized by the ‘Belt And Road Ecommerce Strategic Alliance’, including the Thailand ecommerce association.

A trust mark will improve confidence of new customers in purchasing from unfamiliar websites, including a guarantee against the risk of fraud and non-payment.

Pawoot Pongvitayapanu, founder of tarad.com and President of the Thai Ecommerce Association comments, “For a healthy growth of ecommerce in Thailand and surrounding countries, a well developed trust system is necessary. Our association will give full support to this Trust Mark in the ASEAN market.”

The scheme could build a trust worthy image for Hong Kong’s online trading platforms. The Trust Mark will also provide a channel for complaints and legal consultations. Meanwhile, HKFEC will actively communicate with local government and organizations to make Hong Kong a better place for ecommerce.

HKFEC will aggressively promote the “Hong Kong Trust Mark” and encourage more online retailers to participate. It will also raise awareness regarding IP rights.

Those who obtained the Trust Mark would be authorized to post the electronic logo of the “Hong Kong Trust Mark” issued by HKFEC on their website and linked to a given webpage. Online consumers can click the “Hong Kong Trust Mark” logo on the approved website to review the details and status of that particular site.

Following Alibaba’s various initiatives at battling counterfeit, more ecommerce organizations are stepping up to battle fake goods to better the ecommerce landscape for consumers.

A version of this appeared in Enterprise Innovation on August 18. Read the full version here.

Over the weekend, 11 vehicles were seized by police, local media reported. This involved cars from all three app-based ride-hailing services that operate in Jakarta – Uber, Grab, and Go-Jek’s Go-Car. A traffic police official told Detik the cars were taken because the drivers didn’t carry the required licenses.

License to drive

Ever since Uber-like ride-hailing services became popular in Indonesia in 2015, authorities have struggled to lay out rules for them.

Some demanded that ride-sharing apps bow to the same regulations as metered taxis. More progressive voices argued new rules must be formed for ride-hailing, because the system resembles car rentals rather than metered taxis.

In March, a truce between ride-hailing apps and the ministry of transportation was reached, with the latter passing a new regulation. It requires Uber and its competitors to have their cars go through a road safety test, and register them as commercial vehicles, for example through a car rental company.

The companies were given a period of time to comply. The latest deadline is said to be October 1.

Less tolerance

This raises the question why the raids took place now, some months before the compliance deadline.

It looks like authorities are enforcing a stricter interpretation of the “tolerance period.”

A spokesperson for the ministry of transportation yesterday confirmed that the tolerance time means only vehicles that have already obtained all necessary licenses can operate, not those still in the application process.

Only about 100 ride-hailing vehicles, from all three companies combined, have already fulfilled all demands, the ministry said.

All this indicates that the struggle is far from over for ride-hailing apps in Jakarta.

It’s possible the stricter enforcement has to do with the appointment of a new transportation minister on July 27. Budi Karya Sumadi has yet to come out with a position on the controversial issue.

Over the weekend, he told media that he plans to invite Uber, Grab, and Go-Jek this week to discuss the matter.

A version of this appeared in Tech in Asia on August 1. Read the full story here