As digital goods continue to replace their physical counterparts, from streaming films to downloading e-books, a rule first introduced by the World Trade Organization (WTO) back in 1998 has quietly been shaping how we do business online.
Known as the ‘WTO moratorium on customs duties for electronic transmissions’, it essentially means that countries are not allowed to impose taxes (or tariffs) on digital goods that are sent across borders.
Think Netflix films, software downloads, or e-books bought from abroad – they all travel freely, with no extra customs charges slapped on top.
This very topic is explored in a recent policy brief titled ‘Rethinking ASEAN’s Approach to a Moratorium on Customs Duties for Electronic Transmissions’, authored by Manager for Digital Innovation and Sustainable Economy at the Economic Research Institute for ASEAN and East Asia (ERIA) Mahirah Mahusin and Research Associate at ERIA Hilmy Prilliadi.
But not everyone is on the same page about whether this tax-free zone should stick around forever.
As technology races ahead, the issue has sparked lively debate, particularly within the Association of Southeast Asian Nations (ASEAN).
Some member countries are keen to keep the moratorium in place permanently, while others want to reconsider.
At the heart of the debate is a tug-of-war between fostering digital innovation and ensuring fair income for governments.
A GLOBAL DIGITAL MARKETPLACE
To understand the bigger picture, let’s rewind to why the moratorium exists. It was created to support the growth of digital trade by keeping online transactions simple and tax-free.
The idea was that by removing financial barriers, countries could encourage the exchange of digital goods and services, giving businesses and consumers easier access to what the Internet has to offer.
In 2024, WTO members agreed to keep the moratorium until March 31, 2026.
Supporters said this helps lower consumer prices, supports small businesses and encourages innovation. But critics argue that governments – especially in developing countries – are missing out on much-needed revenue.
They also worry that without clear definitions, the rule is too vague: should the moratorium cover just the delivery method (the Internet), or the digital content itself?
WHAT IT MEANS FOR ASEAN
ASEAN is a region that’s booming with digital growth. From mobile payment apps in Indonesia to artificial intelligence (AI) start-ups in Singapore, the region’s digital economy is expanding fast. Between 2001 and 2018, ASEAN’s exports of digitally delivered products skyrocketed by over 700 per cent. However, not all member states are benefiting equally.
Countries such as Singapore, Vietnam, Thailand and Malaysia dominate both imports and exports of digital goods. Meanwhile, others lag behind due to weaker Internet infrastructure and fewer tech-savvy businesses.
For ASEAN, the moratorium has helped open digital trade and support innovation. But it has also highlighted big gaps in digital readiness across member states.
If the region wants to build a fair digital future, it must find ways to help less-developed countries catch up.
Indonesia is one of the strongest voices calling for the moratorium to end. Its concern?
That the rule limits its ability to protect local industries and generate revenue. Indonesia already has a zero per cent customs duty on software and digital goods, but it requires detailed customs documentation.
For a country with a growing creator economy and a need to support its own tech development, this flexibility matters.
Meanwhile, countries such as Brunei Darussalam, Malaysia, Singapore and Vietnam (all part of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, or CPTPP) have pledged to permanently ban customs duties on digital transmissions.
But even within these agreements, there’s disagreement over whether the ban should include the digital content itself.
Supporters of the moratorium say imposing tariffs could do more harm than good. A study by Makiyama and Narayan found that while governments might earn USD54 million a year from tariffs, the broader economic loss could be three times higher – including lower gross domestic product and lost tax income.
COUNTING THE COSTS
Another study estimated that all countries combined miss out on just 0.1 per cent of government revenue due to the moratorium – a small cost, they argue, for the economic boost it provides.
But others, like economist Rashmi Banga, believe developing countries are losing billions in potential revenue. In ASEAN alone, ending the moratorium could mean recovering USD304 million to USD532 million annually. That’s money that could be invested in schools, hospitals or digital infrastructure.
VAT: A MIDDLE GROUND?
Rather than bringing back customs duties, some experts suggest a smarter alternative: value-added tax (VAT). VAT is already used in many countries to tax digital services like streaming or app purchases.
Countries like Australia and Thailand have proven that this approach can work.
Between them, they’ve raised hundreds of millions by applying VAT to digital sales – without disrupting trade.
This could be especially helpful for the growing creator economy, where people make money through online platforms like YouTube, TikTok or Patreon. Right now, many of these digital earnings slip through traditional tax systems. VAT offers a more consistent and fair way to collect tax without stifling innovation.
DIFFERENT RULES, DIFFERENT OUTCOMES
Outside of the WTO, ASEAN members have signed various free trade agreements (FTAs) that approach digital trade in different ways. For example, the CPTPP prohibits customs duties on all digital products, including content. The European Union (EU)-Singapore and EU-Vietnam agreements follow similar rules.
However, not all FTAs are as clear. The Regional Comprehensive Economic Partnership (RCEP) and the updated ASEAN-Australia-New Zealand Free Trade Area (AANZFTA) Agreement simply say countries should keep doing what they’re doing for now – but leave room for change depending on future WTO decisions.
With so many moving parts, what’s the best way forward?
According to the authors of the policy brief, the solution lies in balance. In their policy brief, they recommend keeping zero customs duties but reviewing the rule regularly; creating clear definitions so everyone knows what’s included; helping member countries develop fair and competitive digital trade rules; supporting policies that promote local innovation and content creation; and using VAT and other smart taxes to replace lost revenue.
They argue that a flexible, thoughtful approach will allow ASEAN to build a fair, future-ready digital economy that benefits everyone. – Izah Azahari
