The second draft of the legislative amendments released in January proposes that a foreign company providing services through electronic media to a non-VAT registered person, where such services are used in Thailand, must register for, and will be subject to, VAT. The registration requirement kicks in when annual VAT-able income exceeds Bt1.8 million.

This draft raised a number of valid concerns, mainly in connection with the lack of clarity on its practical application and imposed compliance obligations. Many interested stakeholders submitted their comments during the second public hearing held in early February. The Revenue Department has now published its responses to these comments providing important clarifications.

A non-exhaustive list of businesses captured by the proposed law includes hotel booking services; e-books, movies, music, advertising, online gaming services; services related to downloadable music, stickers, programmes; and use of programmes and information via the internet. Payment processing systems were kept outside the scope.

These services must be consumed in Thailand, without regard to the tax residency of the consumer. Foreign operators can rely on certain proxy indicators such as addresses, credit card details and IP addresses to identify the location of the service consumption.

It will be important to ascertain whether customers are VAT-registered or not, since VAT-registered customers will continue to be subject to the standard self-assessment rules.

Whilst the government proposes to introduce a simplified VAT registration system for foreign operators, which is a welcome move, there are significant limitations in the way the rules are proposed to operate. Foreign e-commerce operators will not be allowed to explicitly charge VAT to customers, hence they will have to bear this additional tax cost unless they are able to pass it on to their customers though a price increase. This seems to contradict the underlying policy of VAT, which is a tax on consumption borne, ultimately, by customers. Further, the foreign operators will be unable to recover VAT incurred on expenses in Thailand, unless they choose to be full VAT registrants with the undesired consequences of creating a taxable presence in Thailand. Although clarifications released by the Revenue Department undoubtedly provide some clarity, further work is required to ensure that the law is designed to reflect the policy intent.

The government may need to take a step back, hold further consultations with impacted businesses and other stakeholders, and observe how other countries have implemented their e-commerce levies to fully understand the challenges that may arise from enacting a tax on e-commerce.

Contributed by Tatiana Bespalova, Tax partner, International Tax Services, KPMG in Thailand

While the corporate earnings season is maintaining traders’ attention, the release on Friday of US economic growth data is a key marker with a strong reading likely to reinforce opinions that borrowing costs will go up.

An improving economy and expectations that inflation will continue to rise on the back of a oil price rally and Donald Trump’s tax cuts have lifted the yield of benchmark 10-year Treasuries close to three percent and near its highest level since 2014.

Higher yields are a signal interest rates could rise and could weigh on markets as traders shift from equities to safer bond investments.

“For us it’s more the reasons why we’re seeing the move: better growth outlook, a little bit more inflation and faster rate hikes being priced in by the market,” Kerry Craig, global market strategist at JPMorgan Asset Management, told Bloomberg TV.

“It should be reaffirming the fact that we see a global economy that’s looking relatively healthy.”

The dollar rallied on the back of the higher yields, sitting at two-month highs against the yen and seven-week highs against the euro. It was also up against most other high-yielding units, including the Australian dollar, South Korean won, Mexican peso and South African rand.

“Without question (the) US GDP data will be crucial for an extension of the current dollar move as US economic strength in the face of synchronised economic slowdowns in both China and Europe are playing into the resurgent US dollar hand,” said Stephen Innes, head of Asia-Pacific trade at OANDA.

The weaker yen boosted Japanese exporters, which helped the Nikkei to end the morning 0.7 percent higher.

Hong Kong added 1.1 percent, Shanghai rose 1.8 percent and Sydney put on 0.4 percent.

The stronger dollar also helped stocks in London, Paris and Frankfurt.

However, Seoul eased 0.2 percent and Singapore was off 0.1 percent. Taipei, Wellington and Manila were also down.

Technology firms staged a mild recovery after recent losses as Apple suffered another sell-off on worries about the key smartphone sector.

And in oil markets, both main contracts built on Monday’s gains to hold at peaks not seen since late 2014, with ongoing unrest between Saudi Arabia and Yemen rebels providing support.

Adding to the positive outlook for crude is improving demand in the United States and geopolitical tensions.

Key figures around 0230 GMT

Tokyo – Nikkei 225: 0.7 percent at 22,236.53 (break)

Hong Kong – Hang Seng: UP 1.1 percent at 30,578.40

Shanghai – Composite: UP 1.8 percent at 3,122.25

Euro/dollar: DOWN at $1.2192 from $1.2207 at 2100 GMT

Dollar/yen: UP at 108.85 yen from 108.72

Pound/dollar: DOWN at $1.3923 from $1.3941

Oil – West Texas Intermediate: UP 13 cents at $68.77 per barrel

Oil – Brent North Sea: UP 10 cents at $74.81 per barrel

New York – Dow: DOWN 0.1 percent at 24,448.69 (close)

London – FTSE 100: UP 0.4 percent at 7,398.87 (close)

It is vital to a digital economy and Asean’s ‘Smart Cities’ aspiration which is essentially using technology and innovation to make cities more economically competitive and liveable.

It also goes hand in hand with the Asean’s relentless shift towards an internet economy. Southeast Asia is the world’s fastest growing Internet region.

Nearly four million new users will come online every month for the next five years. While Asean consumers currently spend US$30 billion online, this is expected to rise $200 billion by 2025.

The benefits of interoperability are manifold. Interoperability enables individuals, corporates and institutions to make payments to anyone else in a convenient, affordable, fast, seamless and secure way via a single transaction account.

It cuts costs, saves time and presents a huge opportunity for enhanced intra-regional trade and business activity.

Against this backdrop, it is no wonder that payments interoperability is one of key focuses for Asean this year.

Common standards between countries will be the great enabler of this but achieving interoperability is no easy task.

Collaboration the Key

Interoperability is difficult to accomplish within a single country, let alone across a region like Asean.

And while central banks are a key driving force in any payment system reform, they cannot – and should not – act alone.

What’s required is coordination among multiple stakeholders, a conducive legal and regulatory framework, the support of policy-makers and overseers, commercially viable business models and technological solutions, ideally based on international standards.

Steps being made

The Monetary Authority of Singapore’s (MAS) Project Ubin is an industry initiative that explores the use of distributed ledger technology for the clearing and settlement of payments and securities. This could potentially become the common standard for a regional interoperable payments system.

The Bank of Thailand has launched its Wholesale Central Bank Digital Currency initiative known as the Project Inthanon. HSBC looks to actively participate in these to support significant industry developments.

Individual countries are also bilaterally linking up payment systems. Singapore and Thailand are in discussions to connect their national digital payment systems PayNow and PromptPay. If this succeeds, it will forge an unprecedented bilateral alliance.

It’s also a huge step in the direction of Asean’s Smart Cities Network initiative, which is a move to ride the digital wave and step up engagements across the region and beyond.

Integrated system

It’s also the next logical step in the digitization of Asean’s economy. Cross-border payments with immediate settlement are huge opportunities for businesses and consumers.

Activity is certainly abuzz at the regional level. The central banks of Indonesia, Malaysia and Thailand launched a framework last December aimed at increasing direct settlement of trade transactions in their local currencies through designated banks. Direct settlement would mean banks in the three countries could complete transactions in local currencies, improving their operational efficiency. MAS and the World Bank’s IFC have signed a memorandum of cooperation to establish the Asean Financial Innovation Network (AFIN) in May 2017. AFIN will facilitate broader adoption of fintech innovation and development and enhance economic integration within the region.

MAS is also proposing (its consultation paper on the Payment Service Bill) that it be given the mandate to empower large banks in Singapore to open up their payment rails to competitors and third-party players to ensure interoperability of large payment systems.

Asean is firing on all cylinders in its effort to integrate payments systems across the region. Because the bottom line is this: interoperability will significantly change fixed costs, reliability and access. It accelerates the flow of people and trade, taking society and economy to much greater heights.

Contributed by AI CHEN LIM, Head of Global Liquidity and Cash Management, HSBC Thailand

The BOT’s comments yesterday that size can help banks boost their operations, improve risk management and reduce funding costs coincide with a statement from Fitch Ratings that one or two of the largest banks could emerge as the dominant players.

The government last week announced tax incentives aimed at spurring consolidation in the industry and sharpening the banks’ competitiveness at a regional level.

Fitch said the measures would lead to significant shifts in the operating landscape of the country’s lenders.

BOT governor Veerathai Santiprabhob said that banks should act now in this window of opportunity provided by the government’s measures, which see the tax incentives and other measures applicable until 2022.

Officials say the tax incentives do not concern accounting treatments for a tax loss, but target tax requirements that can present as obstacles to mergers, and the changes would not result in any tax collected being returned.

The measures, released by the Finance Ministry, broadly aim to reduce merger-related expenses.

“Mergers will help in boosting competition among the commercial banks, enabling lower costs of financing and enhanced risk management with cheaper financing costs for the business sector,” Veerathai said.

He said that while banks of varying sizes are competing with each other, the Thai enterprises that they serve are growing every day. But the competitive pressures are not limited to Thailand, and are felt increasingly in the region, Veerathai said.

The larger the better

The larger financial institutions become, the better they will be able to serve a range of customers with better risk management.

“Thai enterprises are now larger in size and many of them are investing overseas,” Veerathai said. “However, there remain limitations in the capacity of many Thai financial institutions and they may not be big enough to provide sufficient financial services to these Thai enterprises investing abroad.

“In addition, financial institutions’ general businesses will gain from economies of scale, which holds that the larger enterprises can carry lower costs per unit compared with their smaller peers.

“We cannot say who will merge with whom. Presently, several banks have partnerships with foreign shareholders and foreign networks. “It’s difficult to say which one will be better off from pursuing working with partnerships or engaging in mergers. It depends on each financial institution’s policy. In the matter of mergers, it depends on the areas where a certain bank may need strengthening.”

In response to comments voiced that many Thai banks would not be big enough to accommodate the required investments in the Eastern Economic Corridor, Veerathai said that capital mobilisation can be done through a number of means. This includes tapping the capital markets, such as through bond issuance, and different means can complement each other, he said, adding that whatever the chosen method, it must be executed efficiently to ensure the targeted needs are met.

Fitch Ratings said the bigger banks to emerge from a period of consolidation – the national champions – would be in a stronger position to cope with competition from regional rivals. This rivalry is set to intensify as banking integration in the Asean region proceeds.

Thailand is in bilateral negotiations with Malaysia, Indonesia and Myanmar under the Asean Banking Integration Framework (ABIF) for reduced cross-border licensing restrictions – creating expansion opportunities for the strongest banks.

The largest banks have stronger customer franchises, more diversified business streams, and better through-the-cycle earnings potential than their small and medium-sized domestic rivals.

However, they are considerably smaller than Singapore’s three banks and the two biggest Malaysian banking groups, and comparable with Indonesia’s main players. Opportunities for organic growth have been limited by a downbeat operating environment, with credit growth just 2.4 per cent in 2016 and 4.6 per cent in 2017, albeit with signs of improvement in 2018.

The government has explicitly acknowledged that the new incentives are targeted at boosting the size of the largest local banks, so that they can become more competitive regionally. In that respect, Fitch Ratings said it views the policy as a nationalistic move, which marks a shift in policy direction after years of allowing foreign banks to take control of local players. This was seen most recently with the acquisition of Bank of Ayudhya, the fifth-largest local bank, by Bank of Tokyo-Mitsubishi UFJ.

The incentives to merge include waivers on corporate income tax, value-added-tax, asset transference tax, revenue stamp duty, capital gains tax for shareholders, and special business tax.

Merger-related expenses would also be available for tax deductions at a rate depending on banks’ assets post-merger – ranging from 1.25 times expenses for assets of Bt1-2 trillion to two times expenses for assets of more than Bt4 trillion.

Experts have urged the government, businesses and farmers to embrace information and technologies to revive the sector suffering from low productivity and declining prices for most of the products.

Thai consumers have paid higher prices for local fruits , including durian, in recent years, said Nipon Poapongsakorn, a veteran economist at Thailand Development Research Institute at the forum on “Driving farm sector with technology.” It is partly because Chinese consumers are buying more fruits from Thailand, he added.

“There are many Chinese traders buying durian and other exotic fruits for sales in their market and many of them use Alibaba market place as a key platform,” said Nipon.

At the same time, Thai consumers are buying more apple and other imported fruits due to cheaper prices, he noted in reference to the positive impact of free trade.

Nipon said, however, Thai rice farmers would not enjoy higher prices due to glut of supply in the global market.

“There are about 200 million rice farmers worldwide, so it is impossible for our farmers or government raise the prices, said Nipon.

He suggested the government improve its forecasts of annual farm production and if a forecast is close to the actual volumn, it will help both traders and farmers to prepare for the ups and downs of the market.

He said should the government use technology smartly it would succeed. He raised the example of the US government forecasts of the country’s annual farm production which have been 90 per cent accurate to the actual output.The government could employ weather forecast Technology, satellites images and field survey as well.

State officials in Thailand have failed to support farmers as they spend most of their times formulating agricultural policy, Nipon said.

The government should instruct them to work closely with the farmers, instead of assigning them to formulate agricultural policies, he said.

Researchers at the Bank of Thailand use big data to analyse the agriculture sector on which the livelihoods of 5.8-5.9 million people depend. They found a growing population of aging farmers (over 50 years old), in line with an aging society while the number of younger farmers (under 40 years old), has decreased. The truth is that the number of farm labourers has been dwindling , while the bright side is that younger farmers could access new technology much easier.