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New measures to improve well-being and business opportunities

February 2017 - Tax & Private Client. Legal Developments by LawAlliance Limited.

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7 Feb 2017 at 04:00 / Newspaper section:Business

New measures to improve well-being and business opportunities

This year has started with some legislation aimed at improving tax treatment and allowances to enhance the well-being of people in general, and to add to Thailand's charm as a target for business investors.

The government could use some good news on the revenue front, since one of its last acts of 2016 -- a 15,000-baht deduction aimed at stimulating household consumption -- did not deliver as expected. The main reason is probably that the news leaked out prematurely, so people delayed spending until the brief tax-break window opened during Dec 14-31.

Elsewhere on the tax front, Revenue Code amendments related to individual income tax are now in effect for the 2017 tax year. The top tax rate of 35% will apply to net annual income exceeding 5 million baht, instead of 4 million. This will result in an additional tax saving of about 50,000 baht for those in the top tax bracket: (5 million-4 million) x (35-30)% = 50,000. One could say that progressiveness of the tax schedule has continued to shrink. For middle-income earners, the progressiveness of the tax brackets remains essentially the same.

Other changes include increases in some exceptionally low tax deductions and allowances. The lump-sum deduction for salary earners will be increased from 40% with a ceiling of 60,000 baht to 50% with a ceiling of 100,000 baht. Personal and spouse allowances will be doubled to 60,000 baht per person, and the child allowance doubled to 30,000 baht per child for a maximum of three children. Also, the annual income thresholds requiring individuals with different marital and employment status to file annual income tax returns have been brought up.

Also effective this year are changes intended to discourage individual taxpayers from carrying on business in their own names. Auditors have been urging people to register a company instead. This change will complement corporate law reforms that will allow a small company to have only one shareholder.

As you may recall, the Revenue Code has allowed individual taxpayers to claim a standard deduction at a high rate when they conduct particular types of business (other than employment) under their own names. However, a new royal decree reduces deductions to levels that should convince such taxpayers to form companies. For goldsmiths and pharmacies, for example, the deduction has been cut to 60% from 75%, and for rice milling and hire-purchase of movable property, to 60% from 85%. Taxpayers will be allowed claim higher expenses only if they can provide convincing evidence -- similar to a corporate taxpayer.

The Board of Investment Act has been modified as well. The good news for those engaged in cutting-edge technology and R&D is that they could qualify for tax holidays of up to 13 years, compared with eight for other businesses. Further, tax losses sustained by a promoted project during tax holidays can be carried forward for a period of five accounting years from the expiration of the tax holiday. Note, however, that the amount of net profits exempted from tax may be limited by the value of investment that excludes land and operating costs.

The new BoI Act also offers a chance for businesses not entitled to tax holidays to obtain a maximum 50% tax reduction for up to 10 accounting years. Those that do not qualify for tax holidays or a 50% tax reduction may be allowed to deduct, besides normal wear and tear of assets, an amount equal to 70% of the investment in the promoted project against net profits of one or multiple years for up to 10 accounting years.

Further, the new BoI Act extends the period during which retained earnings derived from a project that qualifies for a tax holiday can be distributed free of tax to shareholders, up to six months after the expiration of the tax holiday. This is realistic, as many businesses were unable to finalise retained earnings figures by the end of their tax holidays in order to meet the old deadline.

In response to the landmark Supreme Court ruling last year that upheld a huge tax bill owed by NMB-Minebea Thai Ltd, the new BoI Act also applies provisions under the Revenue Code in computing the amount of net profits or losses. Where a company operates multiple promoted businesses with tax holidays, if any such project sustains losses, they must be deducted with profits from other BoI projects during the same accounting period; only the net amount of losses can be carried forward after the expiry of the tax holiday. In fact, the BoI had issued similar guidelines under the old BoI Act but many businesses appeared to have misunderstood them.

Last but not least, new royal decrees offer tax incentives to those operating, being employed or otherwise involved with businesses located in special development zones in five southern provinces. Companies in 10 targeted industries in these zones will be exempt from tax for five accounting years subject to certain conditions.

Apart from the tax measures that have already come into force, more draft legislation is in the pipeline to increase investment promotion in the years ahead.

By Rachanee Prasongprasit and Professor Piphob Veraphong. They can be reached at admin@lawalliance.co.th

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