Telecommunications companies and legal experts have come out to strongly oppose the Revenue Department's plan to impose a value-added tax on mobile application sales and corporate income tax on Thai app developers.
A leading mobile app developer said the proposal looks set to cripple growth of the mobile app industry as it increases the burden on developers.
The question is whether the tax on mobile app revenue is applicable under the double taxation treaties Thailand has with foreign countries. If it is, the revenue of Thai developers will be taxed at the source _ namely online stores.
The developer said most developers sell apps through Apple's App Store and Google's Play Store, which are in the US. These stores normally deduct 30% from a developer's income as a fee.
If the tax applies, when a Thai developer sells a copy for 100 baht, the app store will withhold 15% tax on the 70 baht the developer receives or 10.50 baht. The withholding tax would be submitted to the US tax authorities to be cleared with Thai authorities later. The developer receives 59.50 baht and a tax receipt for 10.50 baht.
At year-end, if the developer has a profit, he has to pay the corporate income tax, now at 20%, in Thailand. The developer could use the tax receipts from the app stores to deduct from the burden.
The source said the problem is the withholding tax in the US at 15% is too high. Normally a developer has a profit margin of only 10-20%, translating into a tax rate of 3-6% of income. The tax is deducted immediately, which the source said is unfair.
Also the Thai Revenue Department requires the overpaid tax to be reclaimed in the form of a tax credit deductible from tax due for next year.
"This vague measure puts local firms at a major disadvantage," he said. "It will also push foreign investment away."
Chalermpol Tuchinda, director of Software Park Thailand, said the tax is impractical as mobile developers provide a wide range of services including advertising and other content, not just apps.
"This will discourage the local mobile industry's growth," he said.
Pakorn Pannachet, senior vice-president of Total Access Communication, said mobile users in Thailand use less than 10% of local apps, considered a small portion.
Paiboon Amonpinyokea, founder of P& P Law Firm, said the state's plan will only distort the country's mobile app industry because tax enforcement is subject to only Thai-registered firms.