Ever since the Cambridge Analytica-Facebook incident, the world has become more aware of the potential pitfalls of a highly digitised economy. Although governments acknowledge the fact that data is the new oil for the modern-day economy, the need to safeguard this new resource has become paramount in recent times. As such, governments across regions have started re-evaluating their existing data privacy regulatory frameworks and drafting new ones to accommodate emerging trends.
The governments in the Southeast Asia (SEA) region are also working on drafting regulations and policies that can ensure protection and privacy of citizens’ data as platforms of internet giants like Twitter, Facebook and Google become an important part of their lives. Some countries are even looking at policies to levy tax on digital service providers to ensure a level playing field between digital and non-digital players.
Data protection regulations in SEA
SEA countries are gradually catching up with the Western world to establish a stringent and effective regulatory and policy environment for data protection and privacy. The majority of them have borrowed features and directives from the European Union’s General Data Protection Regulation (GDPR) and incorporated these in their own data protection regulatory framework. For instance, Malaysia is in the midst of reviewing its Personal Data Protection Act, 2010 (PDPA) to ensure that it is in sync with the GDPR. Likewise, in the Philippines, the government is working towards enhancing its Data Privacy Act, 2012, to include rules and regulations mirroring GDPR guidelines. Singapore’s Personal Data Protection Act, 2012 mirrors many GDPR principles such as the need for customer consent for all communications regarding data collection, data processing or disclosure of data.
That said, the development of a data protection regime has not been uniform across SEA countries. Until recently, Singapore, Malaysia and the Philippines were the only countries with personal data protection laws in place. Most recently, Thailand joined the list when the country’s parliament passed the Personal Data Protection Act last year. Apart from this, Indonesia has been emphasising the need for a general data protection law and has prepared a draft legislation to this end. The remaining countries in the region do not even have an overarching regulatory framework for data protection. However, in some cases they do have laws in specific sectors or for the electronic media that protect personal data.
Creating monetary obligation for tech giants
With the growing number of cases of data privacy breach, it seems that merely regulating data collection practices of internet companies will not be enough. As a result, there is an ongoing debate around the need to tax big internet giants such as Facebook, Google, Netflix, etc.
As part of this approach, various SEA nations have come out with regulations that lay down the monetary obligation for such digital service providers while selling to their citizens. For instance, the Philippines government has proposed the Digital Economy Taxation bill that seeks to better capture value created by the digital economy and have tech giants like Netflix, Google, Facebook and Lazada pay their fair share. The bill seeks to impose a 12 per cent value added tax (VAT) on digital advertising services, subscription-based services, services rendered electronically, and transactions made on e-commerce platforms. As such, through this act, the Philippines government aims to generate an additional revenue of around $468.39 million per year. Moreover, the bill requires suppliers of digital services, network orchestrators, and e-commerce platforms to set up a representative office in the Philippines.
According to some government executives, this bill will plug loopholes and address the ambiguities in the taxing of digital services. Government estimates indicate that Facebook and Google earned $804.79 million from ads that cater to and are paid for by Filipinos. However, since this earning was on the digital domain, they did not have to pay VAT or income tax. Likewise, Netflix earned $80.48 million in subscriptions from Filipino customers but did not have to pay VAT. Its on-ground competitors (local TV networks), on the other hand, were subjected to VAT and income taxes. These are the kinds of disparities and ambiguities that the bill seeks to address.
Further, the Philippines’ government has stated that these are not really new or additional taxes, but are taxes that are already being paid by other non-digital players and hence it is only fair that digital service providers also pay these taxes.
Similarly, Thailand, in June 2020, approved a draft bill requiring foreign digital service providers to pay VAT. This bill states that all non-resident companies or platforms that earn more than $57,434.59 per year by providing digital services in the country have to pay a 7 per cent VAT on sales. Once this bill gets passed in parliament, it will enable the government to earn around $95.72 million per annum by taxing digital services.
Indonesia too, in May 2020, announced plans to introduce a 10 per cent VAT on digital services delivered by foreign companies. This came into effect on August 1, 2020. Under the new rules, non-resident foreign firms that sell digital products and services in Indonesia worth at least $41,667 per year or which generate yearly traffic from at least 12,000 users will be required to pay the 10 per cent VAT.
The way forward
There are two different schools of thought as far as regulation of large tech giants is concerned. While there are the proponents of strict regulation of such digital service providers on the one hand, on the other, there are those who believe that stringent regulation of such players can potentially hamper the growth of that country’s digital economy.
Those in favour of stricter regulation and taxing of tech giants are of the view that such a practice would not only help the government safeguard the interests of its citizens but would also enable it to tap the country’s internet economy to increase revenue. Further, they believe that this would provide a level playing field to the non-digital competitors of these players, who so far have been paying certain taxes like VAT and were bound by various regulations that did not apply to digital service providers. In addition, there seems to be a general consensus among the governments of the world that if a company is making money from a particular country’s citizens, then they should also pay taxes to that country’s government.
In contrast, those opposing the implementation of a stringent regulatory framework believe that there is a possibility of the SEA nations derailing their vision to push digitalisation of their economies if the policies are too stringent. Similarly, taxing multinational internet giants may affect current and discourage future investments in the country. Further, various civil society organisations are of the view that overregulation can potentially lead to institutionalised censorship. According to Freedom House’s 2018 Net Freedom survey, all SEA countries rank as either not free or partly free.
Going forward, it would be in the best interest of governments to adopt a balanced approach towards the regulation of digital service providers, whose role in shaping the digital economy of a country cannot be undermined.
