PwC Urges Thai Tax Revamp to Keep Pace as AEC Changes Loom

BANGKOK, 29th October 2013 – PwC Thailand, part of the world’s biggest network of corporate audit, tax and advisory firms, urged policy makers to amend the country’s taxation structure to keep pace with the changing business environment before the Asean Economic Community (AEC) takes effect in early 2016.

PwC firms in North America and South America led strong growth for the third consecutive year, with revenues up 7% and 9%, respectively. This sustained growth reflects PwC’s rising share of the market for advisory and consulting businesses in the region. The firm continued its recent trend in seeing its consulting businesses grow faster than its core audit businesses—the product of strong demand for consulting compared with a maturing market for traditional audits.

Continued fallout from the global financial crisis, changing trends in cross-border investment and trade flows, and macro changes in the world economy will ratchet up pressure on worldwide governments to question traditional tax structures. This will prompt them to revisit long-established principles governing cross-border taxation.

The shockwaves of the global financial crisis are still reverberating, particularly in the developed world, as governments seek cash to finance persistent fiscal deficits, Sira Intarakumthornchai, CEO of PwC Thailand, said at PwC’s 15th annual conference: “Maximise Shareholder Value through Effective Tax Planning 2014 – ‘Equipping yourself with the right tools for a world of changes.’”

“Over the past year or two, we’ve seen that tax-planning activities of MNCs around the world have increasingly become the subject of intense scrutiny and criticism,” Sira said.

“Governments are looking for ways to raise additional revenue, and challenging what is perceived to be, or labelled as, ‘tax avoidance’.”

The world of tax planning is facing its most significant period of change. Large-scale readjustments in the global economy and new ways of doing business have created not only the need for change, but also a significant appetite for such change.

“With the full realisation of the AEC in the picture, it’s crucial that the government pursues thorough tax reforms in a bid to bolster Thai companies to make overseas investments, and on the other hand attract foreign inflows into the country,” Sira added.

Thailand is looking to become a base for multinational companies to set up a Regional Operating Headquarters (ROH) and expand operations throughout Southeast Asia as governments break down trade and investment barriers. Strategically located in the middle of the region, Thailand’s solid infrastructure, skilled labour, access to raw materials and attractive tax incentive make it ideal for companies looking to save costs and remain competitive.

Thavorn Rujivanarom, Lead Partner at PwC Tax & Legal Consultants Ltd., said the Thai tax system has seen several improvements in recent years as a result of significant efforts by the authorities.

“Key changes include the long-awaited cut in corporate income tax to 20%, in order to promote more investment, whereas our personal income tax, or PIT rate, currently stands at 37%, compared with the 2013 ASEAN PIT average rate of 31%, which will be slashed to 35%, subject to the Cabinet’s approval,” Thavorn said.

“To a degree, the tax cut on many fronts would inevitably result in a loss of the government’s revenue, but in return, it would also help increase the country’s competitiveness,” he added.

The Revenue Department is looking to improve the efficiency of tax collection, broaden the tax base and increase enforcement of tax laws and regulations.

Thavorn said that other considerations should also be taken into account when planning for tax reforms so as to encourage inbound investment and retain the cash flow within the country; for example, reduced trade barriers and support for Thai operators in outbound investment and trade (e.g. income tax exemptions for offshore investment, Section 70 ter, etc).

“Other leading tax enforcement focus areas worth crucial consideration also include adopting anti-tax-avoidance legislation to include the issues of thin capitalisation, foreign-controlled corporations and general anti-avoidance rules etc. to protect the country from any abusive tax scheme,” he added.

Thailand is restructuring its tax revenue to rely less on income tax and more on consumer, wealth and asset taxes as the ageing population expands, according to the Finance

Ministry’s Fiscal Policy Office (FPO).

The latest was the government’s approval of the proposed rate of taxation on unused or empty plots as being at least 0.5% of the value of the land.

Thailand’s tax revenue for the fiscal year 2013 (ending Sept 30) grew by 9.2% to 2.16 trillion baht, and 2.7% higher than the target, partly due to above-target tax collection by non-Finance Ministry state agencies, higher-than-expected revenue from petroleum concessions plus special revenue from the telecom regulator’s auction of the 3G 2.1-gigahertz spectrum, the FPO had said earlier this month.

The Revenue Department’s total tax collection stood at 1.76 trillion baht, below target by 9.29 billion baht or 0.5%, but 9.1% higher than last year’s.

“All in all, there have been many improvements in the Thai tax system in recent years but whether this will truly make paying taxes fairer, easier or mutually beneficial will depend on the effectiveness of the authorities’ efforts to improve tax collection without creating an additional burden to the business entity so that business can focus its attention on improving its sales and bottom lines,” he concluded.

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Personal Income Tax (PIT)

A direct tax levied on income of a person. A person means an individual, an ordinary partnership, a non-juristic body of person and an undivided estate. In general, a person liable to PIT has to compute his tax liability, file a tax return and pay tax, if any, accordingly on a calendar year basis.

The Association of Southeast Asian Nations (ASEAN)

A regional association composed of the ten countries comprising Southeast Asia—Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar (Burma), Philippines, Singapore, Vietnam and Thailand. Asean, home to a burgeoning population of some 600 million people, accounts for almost 9% of the world’s population.

As a single economic block, its combined nominal GDP of USD 2 trillion ranks ninth in the world. Although relatively small compared to China and Japan, ASEAN comprises one of the most dynamic emerging economies of the world, with an average nominal GDP growth rate among the ASEAN-6 (Singapore, Malaysia, Indonesia, Thailand, Vietnam, and the Philippines) of 4.5% during 1989–2009.

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