Tax cuts not as tasty as they seem
After the elections that brought the Pheu Thai Party to power, there was a lot of discussion about the new Government’s plan to reduce corporate income tax rates (CITR).
Monday 9 April 2012, 12:36PM
While debate still rages about the potential negative impact on businesses in Thailand of the minimum wage rate increase, the Government actually went ahead and reduced the CITR significantly.
Surprisingly, relatively few people seem to be aware of this. Here is a summary of the recently decisions and decrees and their effects on CITR.
According to Title II, Chapter 3, Schedule 2(a) of the Revenue Code, the CITR on profit for Thai companies is 30 per cent. However Title I, Section 3(1) of the Code allows this rate to be reduced for some or all companies by way of a Royal Decree (RD) issued by the Cabinet.
And, in fact, under RD 471, issued in 2008, small to medium-sized enterprises (SMEs) – defined as companies whose total capitalisation was B5 million or less on the last day of the tax year – were exempted from paying CITR on income of B150,000 or less, a rate of 15 per cent on taxable income between B150,001 and B1 million, and 25 per cent from B1,000,001 to B3 million.
Also, under RD 467, issued in 2007, the CITR for companies listed on the Stock Exchange of Thailand (SET) on the Market for Alternative Investment (MAI) was reduced to 20 per cent, while the CITR for all other companies listed on the SET was reduced to 25 per cent.
(For those who have not come across it, the MAI is a separate stock market set up by the SET as an alternative market for small and medium-sized enterprises. There are currently 74 companies listed on the MAI.)
So, long before Pheu Thai came to power, few smaller companies were paying the full 30 per cent CITR.
On December 14 last year the Cabinet issued RD 530 which repealed and replaced RD 471 and part of RD 467.
The CITR for SMEs – now redefined as any company with a capitalisation of not more than B5 million and not having an annual income of more than B30 million – is as follows:
Zero tax on net profit up to B150,000 for all of the tax years beginning on or after January 1, 2012;
15 per cent on net profit from B150,001 to B1 million for all of the tax years beginning on or after January 1, 2012;
23 per cent on net profit of B1,000,001 or more for the tax year which begins on or after January 1, 2012; and
20 per cent on net profit of B1,000,001 or more for all of the following tax years which begin on or after January 1, 2013.
The CITR for all other companies, including those listed on the main SET (but not the MAI) is now set for the next three consecutive accounting periods as follows:
23 per cent on net profit for the tax year which begins on or after January 1, 2012; and
20 per cent on net profit for the following two tax years which begin on or after January 1, 2013.
The CITR for the companies that are listed on the MAI remains at 20 per cent of net profit – this is the part of RD 467 that remains in effect.
These CITR reductions are clearly a welcome development for those investing and doing business in Thailand.
However, it should be noted that although RD 530 gives no end date for the CITR reductions for SMEs, this is not the case for all other (non-MAI listed) companies. What will happen after the expiration of the three years set in RD 530 is unclear.
The most commonly stated rationales for the CITR reductions are to make the business environment more competitive in Thailand compared with neighbouring countries, and to “compensate” Thai companies for the coming minimum wage increases.
But such assertions are undercut by the fact that the tax reductions under RD 530 are not “permanent” for most “normal” companies.
Even if the Government’s plan is to extend or even increase them three years from now, it will take an act of political will by the then Cabinet to do this. Thus, any such extension has to be viewed as uncertain.
Although the current easing of tax rates is helpful for existing businesses, for those considering doing business or investing long-term in Thailand, the outlook beyond the three years is rather vague.
DUENSING KIPPEN is a multi-service boutique law firm specializing in real estate and corporate/commercial transactional matters as well as arbitration proceedings arising therefrom. It is the only such firm in Thailand that also compliments its transactional expertise with a core tax law practice. DUENSING KIPPEN can be reached at: firstname.lastname@example.org or for more information please visit them at: www.duensingkippen.com