Asian countries should adopt digital services VAT to boost revenue: IMF

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Imposing VAT on nonresident suppliers of digital services could raise revenue of between 0.04% and 0.11% of GDP in certain Asian countries. That’s the finding of a new IMF report,  “Digitalization and Taxation in Asia”.

According to the IMF, that would mean “an additional $166 million in Bangladesh, $4.8 billion in India, $1.1 billion in Indonesia, $365 million in the Philippines, and $264 million in Vietnam”.

Consumers in Asia are consistently increasing their digital commercial activity. Digital services VAT therefore poses a clear and effective means for governments to enhance revenue collection.

The tax challenge of digital services 

As the IMF report points out, “there is broad agreement across countries that VAT should be paid where the final consumer resides”. However, collection is complicated in a digital economy as revenue collection principally relies on locally-registered firms.

As digital services become more central to the global economy, the question of digital revenue collection has become more urgent. It is therefore no surprise that an increasing number of countries are adopting digital services VAT.

Moreover, as the IMF report indicates, digitalization is especially pervasive in Asia,  “with internet users far exceeding numbers in other regions”.

In addition, the growth of the digital economy received a further boost owing to the Covid-19 pandemic.

Digital Services VAT vs Digital Services Tax in Asia

The IMF report also considered the possibility of implementing digital services taxes on revenue. However, the authors found that digital services taxes would produce relatively low revenues.  DST also could have negative business effects.

The authors therefore favour digital services VAT as an effective means of generating revenue.

Global framework for digital services VAT

Digital services VAT is quickly becoming a global norm.

According to the OECD, 70 countries have already implemented, or are taking steps towards implementing, the OECD’s standards and guidance for digital VAT.

An additional 40 countries are planning to implement the standard.

 

Disclaimer: Reproduced/Adapted with permission from VATGlobal.

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