Digital tax developments in the Asia-Pacific region

Tue Feb 23, 2016

There have been some major digital tax developments in the Asia-Pacific region this month. Digital Tax Developments

In early February 2016 Ernst & Young urged the Singapore Government to introduce a new tax on international digital service suppliers in the island city-state’s 2016 Budget. Photo: Pixabay

The Asia-Pacific region, in general, has been very active in the realm of digital taxation.

In October 2015 Japan amended their consumption tax laws. Now, all foreign businesses supplying digital services to Japanese consumers must collect and remit an 8% consumption tax to the Japanese tax authorities.

Later this year – on October 1 – New Zealand will change their GST laws so that all digital service sales over NZ$60,000 (in a 12-month period) supplied by foreign digital service merchants will be subject to their 15% GST. This threshold on sales has been introduced to align with New Zealand’s existing GST threshold for physical goods.

In a move that reflects the European Union’s approach to the taxation of digital services, merchants must also collect two non-conflicting pieces of evidence to prove the location of their consumer.

It may not be long before New Zealand’s Antipodean neighbours, Australia, introduce similar legislation.

Australia introduces new digital GST bill

On February 10th the Australian Treasurer Scott Morrison read a bill into the Parliamentary record aimed at taxing the cross-border digital services (“inbound intangibles”) provided by non-domestic digital companies to Australian consumers.

For taxation purposes “Australian consumers” will be anyone who is resident in Australia, and not registered for goods and services tax (GST) – in other words: a private individual. Therefore, the proposed new law will cover the B2C supply of digital services from foreign digital companies to Australian consumers.

In a move mirroring the approach of other jurisdictions to introduce such digital tax laws, when the seller makes a supply via an “electronic distribution platform” then it is the platform that will be responsible for the collection and remittance of GST. The GST rate to be collected and remitted will be 10%.

What is an “electronic distribution platform”?

As defined in the digital GST bill that has been read into the Australian Parliament “a service (including a website, internet portal, gateway, store or marketplace) is an electronic distribution platform if:

  1. The service allows entities to make supplies available to end-users; and
  2. The service is delivered by means of electronic communication; and
  3. The supplies are to be made by means of electronic communication”

Australia will use their GST system to raise revenue with a planned introduction date of July 1, 2017, if the bill becomes law.

The Treasurer also outlined the reasoning for the GST bill (in full it is called the ‘Tax and Superannuation Laws Amendment (2016 Measures No. 1) Bill 2016’): “The Bill will require overseas vendors selling digital products or other services, such as ‘apps’ and downloads of digital content, to register, report and remit GST on their sales to Australian consumers. This improves the integrity of Australia’s GST base in an area of rapid international growth and ensures a level playing field for business, regardless of the origin of the digital product or other services.”

In the second reading of the bill to the Australian Parliament Morrison stated that the new GST plan “will be one of the rules of doing business with Australians in this country if you are seeking to sell them services from overseas. You will not be able to avoid it.”

The Australian Taxation Office has estimated a direct GST revenue gain of AUD$350 million between 2017 and 2019. This extra revenue will be allocated to Australian states and territories.

Another important point to note is that a threshold of AUD$75,000 applies, so any companies selling less than this threshold figure in a specified timeframe will not have to register for the collection of GST on their digital sales to Australian consumers.

Here’s a link to the bill on the Australian Parliament website: http://www.aph.gov.au/Parliamentary_Business/Bills_Legislation/Bills_Search_Results/Result?bId=r5613

Potential Philippines eCommerce tax changes

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

One of the points of focus for the Philippine tax authorities are companies that sell services via social media sites such as Facebook and Instagram. Photo: Benson Kua/Flickr

The BIR Commissioner Kim S. Jacinto-Henares told Filipino reporters that she is “going to come out [with an order] for the digital economy within the next few weeks.” The plan is will apply to “whoever uses the digital platform to sell, to provide service, and receive payments.”

It is unclear from reports whether this plan will initially be designed solely for domestic Filipino-based digital service companies or if it will also apply to multi-national companies. However, one of the points of focus for the Philippine tax authorities are companies that sell services via social media sites such as Facebook and Instagram.

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.

In a broader sense it is clear that interested parties in the Asia-Pacific region are moving towards the introduction of destination-based taxation of business-to-consumer eCommerce. According to the ‘Philippine E-Commerce Roadmap ’, finalised and released in January 2016, the Asia-Pacific region was expected to become the world’s largest eCommerce region with 33.4% of total global sales in 2015.

Singapore urged to tax the digital economy

In early February Ernst & Young’s Kor Bing Keong, Partner GST Services, urged the Singapore Government to introduce a new tax on international digital service suppliers in the 2016 Budget.

Kor stated that the “non-taxation of supplies made by overseas service providers through the digital economy does not only create a GST leakage to the government but also a price disadvantage to domestic suppliers, resulting in an uneven playing field.”

As a means of supporting the Singaporean government’s spending Ernst & Young’s Chung-Sim Siew Moon, Head of Tax Services, added – in their budget wishlist – that they “suggest ways to capture new streams of tax revenue through lowering the GST registration threshold and imposing GST on the digital economy.”

According to the Inland Revenue Authority of Singapore the current GST registration threshold is SGD$1 milllion (USD$714,000). Once registered a company’s GST returns are due at the end of each calendar quarter. The EY budget wishlist recommends that this GST registration threshold be lowered to SGD$500,000 (USD$357,000). If this new threshold was applied it “could bring more businesses into the GST net and increase revenue collection.”

Interestingly, the language used by Kor of an “uneven playing field” echoes the words of the Australian Treasurer Scott Morrison (“level playing field for business”), and those of many European Union (EU) politicians prior to the introduction of new digital VAT rules in January 2015. Such destination-based taxes are the recommended Organisation for Economic Co-operation and Development (OECD) taxation approach. These recommendations are outlined in action 1 of the OECD’s Base Erosion and Profit Shifting (BEPS) report which was released in Q4 2015.

Digital evolution in the Asia-Pacific region

Last year Singapore and the Philippines were lauded in a study carried out by the Fletcher School at Tufts University , and reported on by the Harvard Business Review.

The study into the digital age marked Singapore as a stand-out economy and the Philippines on the cusp of a break-out when it came to being ready for the e-consumer. The study aimed to provide an understanding of the systemic forces that drive digital evolution and how this understanding will aid strategic decision-making among businesses, investors, and policy-makers.

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