Ending widespread tax evasion by SMEs in Thailand

The old tricks that some smaller Thai businesses have used to avoid paying taxes like other citizens may be coming to an end with new govt measures and technologies.

TAXES & SMES

Ending widespread tax evasion by SMEs in Thailand

7/03/2017
Wichit Chantanusornsiri

Just 40% of the Thailand's 2.6 million small and medium-sized enterprises (SMEs) have agreed to enter the new government tax scheme aimed at curbing widespread tax evasion among SMEs.

SMEs typically use two or three bank accounts to obscure actual earnings in order to avoid paying corporate income tax.

The Revenue Department has tried to prod SMEs into adopting a single bank account with carrot-and-stick measures for one year,

This is according to Prasong Poontaneat, director-general of the Revenue Department.

Besides increasing government revenue, the measures also make the tax system more fair and equitable by forcing the small and medium-sized businesses that have long-evaded taxes pay their fair share of taxes like the rest of us.

BRINGING BUSINESSES INTO THE FORMAL TAX SYSTEM

The new single-account tax payment scheme is part of the Finance Ministry's plan to bring businesses into the country's formal tax system.

Those SMEs that fail to register under a single financial bank account by March 15 will face heightened tax scrutiny for tax evasion by the revenue department. 

In other words, they run the risk of a tax audit and penalties for not paying taxes.

INCENTIVES TO ENTER FORMAL TAX SYSTEM

The new scheme does provide incentives to entice SMEs to enter the single account scheme.

The scheme allows registered SMEs with capital of up to 5 million baht and revenue of up to 30 million baht for the 2015 accounting year to have:

1. Zero tax burden for the 2016 accounting year,

2. A 10% corporate tax rate for net profits above 300,000 baht for the 2017 accounting year and

3. A tax exemption for net profits of less than 150,000 baht. Normal rates will resume from 2018.

BANK LOANS WILL BASED ON REPORTED INCOME

From Jan 1, 2018, local financial institutions must use the accounts businesses submit to the Revenue Department as a key factor in considering loans.

This is according to Pipavat Bhadranavik, a representative of the Thai Bankers' Association.

"Credit lending will be in line with the revenues submitted to the authorities."

"If your revenue is low, the credit line will correspondingly be low," Mr Pipavat said.

VAT COLLECTIONS RISE AFTER HALF MILLION SMES PARTICIPATE

Some 465,000 SMEs have participated in the scheme, resulting in a 4% rise in value-added tax (VAT) collected from SMEs in the 2016 tax year.

The VAT increase from SMEs with sales of over 30 million baht but not exceeding 500 million was 3% last year.

TRACKING DOWN CRIMINAL TAX EVASION BY SMES

Mr Prasong divided SMEs into four categories:

1. Those ready to register with a single account,

2. Those hesitant because they believe officials might not find evidence of their tax evasion,

3. Those willing to understate payments, and

4. Those who will never enter the tax system.

"Some people think it is fine to take a risk because they believe they can come in and negotiate with officials, but they don't know we have an upgraded IT programme to reduce human interaction in tax calculation and collection."

"This makes it easier to trace records, making it easier to catch both SMEs and officials in evasion. If caught, both will face a criminal charge," he said.

OLD TRICKS MAY BE COMING TO AN END SOON

"Other signs can suggest wrongdoing."

"For example, some SMEs in the North reported a combined accrued earning of 30 billion baht, but instead of a dividend payment, the companies' debtors were also their directors. This does not make sense."

http://www.bangkokpost.com/business/news/1210129/40-of-smes-joined-formal-tax-system

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