Posts

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

ecommerceIQ

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”.

In the last 12 months, 144 million people went online for the first time in Southeast Asia — 45 million from Indonesia alone — to shop, to chat, to share news and to connect.

This brings the total internet population in the region to over 1.9 billion people.

While the internet penetration rate for the region (47%) is still below the world’s average (51%), the growth of internet users in the region (8%) outpaces the global rate by 1%.

social media apac

And the catalyst for the rapid growth in the sector can be credited to…social media?

More than a platform to share selfies

Excluding Indonesia, the latest findings from Kepios show that social media penetration in Southeast Asia’s biggest markets (Thailand, Singapore, Malaysia, Philippines, and Vietnam) is above 49% of the region’s population.

social media apac

What has fuelled this social media frenzy?

In these markets, being connected has transformed the standard way of life. Anyone can become an “entrepreneur” with a Facebook/Instagram shop, customers order from a marketplace at any time of the day, businesses can sell direct to consumer and the world becomes an entirely accessible market.

In some markets, Facebook is synonymous with the internet.

And these platforms continue to improve their user experience with fresh content, new algorithms, and media formats to hook users into browsing for longer.

Instagram is one example of a social platform that continues to innovate. The Facebook-owned company recently launched a “shoppable post” that aims to let 2 million of its advertisers sell directly to the photo-sharing’s 800 million users.

Although the function is only available to businesses in the US at the moment, Southeast Asian companies should be active on social channels and take advantage of features that push the digital trend agenda forward.

It won’t be surprising to see more of this in the region.

Welcome to the first day of December, here’s what you need to know today.

1. Jungle Ventures raises $100m fund for Southeast Asia and beyond

Singapore-based venture capital firm Jungle Ventures announced today it has completed fundraising for its second fund, achieving its target of US$100 million.

The investment firm will lead in larger series A and B rounds. It will target primarily Southeast Asia but also companies in territories like India and Australia, especially if it can help them expand to this region. Its current deals range from US$3 to 5 million per company.

Read the rest of the story here

 

2. Forum explores securing APAC cashless payments

Singapore’s cards and payments market is one of the most competitive and attractive in the Asia-Pacific region. In fact, 69% percent of consumer spending in Singapore is made through electronic payments. This has led to a meeting of global payment and cyber security experts at the PCI Asia-Pacific Community in Singapore last week to collaborate on helping businesses prevent, detect and respond to cyberattacks that can lead to payment data breaches and fraud.

Read the rest of the story here

 

3. Thai univeristy opens Alibaba ecommerce training centre

The University of the Thai Chamber of Commerce (UTCC) has become an authorized Alibaba ecommerce training center in Thailand.

Both organizations said they will work to accelerate ecommerce growth in Thailand and help Thai SMEs position themselves in the global market. Several collaborative programs, including training the trainers, have already been implemented. A team of Alibaba personnel has coached UTCC faculty members in the School of Business and the School of Science and Technology, among others, to become certified Alibaba trainers.

Read the rest of the story here

 

It’s all about payments today. Read below for today’s biggest headlines.

1. GoSwiff partners with UnionPay to increase mobile transactions in Thailand

GoSwiff, a global leader in digital payments, announced a partnership with UnionPay International (UPI), a global payment network, to enable merchants on Nimmanahaeminda Road in Chiang Mai to accept UnionPay cards. Using GoSwiff’s mobile point of sale (mPOS) solution, micro merchants can now accept and process secure PIN-based card transactions in Thailand.

Read the rest of the story here

 

2. GrabPay just got easier to use

Users can now top up their credit balance inside the app through various channels: credit card, ATMs, internet banking, or through the cashier system at convenience store chain Alfamart.

GrabPay credits can then be used for cashless payment for any service ordered through the app, such as a car ride or food delivery.

Read the rest of the story here

 

3. Digital payments fueling fintech investments in APAC

The emergence of new business models is enabling players to innovate and invest in technologies such as Blockchain, digital payments, cloud services, cyber security, product lines and solutions. Players must rethink strategies and align their business vision with technology goals to define their value proposition to customers and survive in the rapidly evolving digital ecosystem.

Read the rest of the story here

In a record high, Facebook pulled in just over US$1 billion in revenue from the Asia-Pacific region, reports Tech In Asia.

The $1.03 billion figure for Q2 has more than doubled from the $431 million Facebook pulled in from the region exactly two years ago. Majority brought in by advertising and the impressive milestone was reached without any help from China’s vast population as Facebook is blocked there.

Facebook’s Data

  • Daily users in Asia reached 346 million
  • Monthly active users in Asia reached 592 million
  • Average revenue per user in Asia grew to $1.77
Source: Mark Zuckerberg's Facebook

Facebook and its brands’ global reach. Source: Mark Zuckerberg’s Facebook

Facebook’s bottom line is benefiting from a lot of Chinese companies that are using its ad platform to reach customers around the world. 

Even Chinese state media is using Facebook as part of its soft power reach to the world.

The money Facebook makes from Europe has also doubled in the past two years, while in the US and Canada it has nearly tripled in the same period.

Facebook has made aggressive moves into Southeast Asia this year, choosing Thailand as the country to test its social commerce pilot project due to the popularity of C2C commerce in the country. The company has also announced the integration of ecommerce into Facebook Messenger in the form of Chat Bots; allowing users to communicate with brands and merchants on the chat platform, users can make payments and confirm delivery on the space as well.

2016 is shaping up to be a very good year indeed for Zuckerberg and co.

A version of this appeared in Tech In Asia on July 28.  Read the full version here.

Poor market conditions and increasing innovation in the digital space is facilitating the growth of ecommerce, according to e27.

Consumers are being more economical amidst slow economic growth. A report by Deloitte in 2015 cited that in APAC, retail revenue growth slowed dramatically in 2014. 55.3% of the APAC companies surveyed in that period reported a lower net profit margin and 4.3% reported a negative net profit margin.

While sales have contracted, the impact would have been even worse if it wasn’t for ecommerce.

Of the top 140 most profitable retail companies worldwide, 7.6% of sales came from online channels and 33% of the companies don’t have an offline store.

Examples of most profitable online retail companies 

  • Amazon: Raked in more than $70 billion in revenue in 2014
  • JD.com: Sales jumped to 62% at $17.7 billion
  • The top 50 e-tailers in total saw a boost of 19.7% in profits in 2014.

Shift in consumer behavior

There are various factors that are contributing to the growing trend of online shopping, from a sharp increase in smartphone adoption, the rise of cross channel social media to competitive pricing. Over half of survey respondents said they have shopped online at least once since 2016, in a total retail survey published by PWC.

51% of online shoppers shop through social media channels in Thailand, Malaysia at 31% and China at 27%.

Shoppers in Asia Pacific are more social orientated, their spending habits are susceptible to what their peers think.

In Malaysia, 69% of consumers said that feedback and reviews influence their purchasing behavior.

Shopee case study: heading towards retail innovation

It may be too soon to say that the sun is setting on traditional brick and mortar retail, but radical innovation is crucial to retain customers. Figures have showed that the ecommerce sector provides the engine of seismic changes that the industry needs in this slowing economy.

An example of disruptive technology is Singapore based C2C ecommerce platform, Shopee, developed under internet platform service Garena.

Shoppee allows buyers to snap and upload screenshots of their items directly onto the platform and start selling instantly.

For more established SMEs, it has a ‘seller assistant’ function to help to organize inventory and track performance.

The platform also forms third party collaborations to enable logistics, such as a partnership with Singapore based startup, NinjaVan. The platform also recently launched Shopee University, an online program to teach sellers online marketing and photography skills.

Ecommerce does not just enable traditional businesses and SMEs to seek another channel for revenue, it is democratising commerce. By putting ditching the physical modus operandi, anyone with a smartphone or a computer can put an item for sale to potentially millions of customers in a matter of seconds.

A version of this appeared in e27 on July 13. Read the full version here.