accountants and business advisers
02 Feb 2016
On January 1, Royal Decree No. 595 was launched in order to encourage businesses to prepare their financial statements in good faith. The Decree provides strong incentives for SMEs to file accurate tax reports moving forward, while forgiving some negligent bookkeeping practices which may have understated their companies’ financial performance in the past.
The new initiative was introduced in an effort to create an accurate tax base that reflects the real economic situation of the country. Until now, the widespread practice wherein many companies keep two sets of ledgers (one for ‘official’ purposes, another for their internal bookkeeping) has meant that a true understanding of the Thai business world has been elusive. Apart from the loss of tax revenue that this uncertainty has created until now, the lack of true economic transparency has also led to a virtual haze over the economy, in which real financial performance around the country has been shrouded in a mist and informed investment a nearly impossible goal to attain.
Small and medium-sized enterprises that sign up with the scheme will be exempted in most cases from backdating probes, and therefore need not worry about honest mistakes that may lead to discrepancies between their next tax filing and the previous ones they have submitted.
Adopters of the single-bookkeeping system will additionally enjoy generous tax breaks for two years. SMEs taking advantage of the new scheme will be exempted from all corporate income tax on net profits for the 2016 accounting year. They will also enjoy tax exemptions on the first 300,000 baht of their net profits in the following accounting year, while the portion of their profits above that amount will be taxed at 10%.
This forward-looking approach does not amount to total immunity from past errors, however; the new exemptions do not apply to companies that are currently under investigation, in the midst of tax audits, or currently involved in tax court proceedings. Furthermore, if a business signs up for the scheme but afterwards does not pay the correct tax, then their exemption from backdating probes can be cancelled.
It is also important to note that if a refund is requested during the year that it is exempted from the tax audit, the Revenue Department maintains the right to audit the specific period for which the refund is being claimed.
PKF Thailand can help businesses successfully register for the programme through the Revenue Department, from January 15 to March 15. Please, however, note the following criteria when signing up for the scheme:
To further standardize and regulate the internal accounting processes of SMEs, the Finance Ministry and the Bank of Thailand will enact new requirements for banks, beginning on January 1, 2019. From that date forward, when SMEs seek loans from Thai banks, those banks will be compelled to use as primary evidence the books and financial statements that these SMEs have submitted in their official tax filings.
Furthermore, it is possible that the Revenue Department will soon oblige all corporate taxes to be paid via the e-payment system, which will be linked between banks and the tax authorities.
With this clear new focus on the integration of financial record-keeping systems between (and within) companies, banks and the government, it is clear that the days of loose accounting procedures are coming to an end in Thailand. As the incentives now clearly point to SMEs accurately reporting their financial details as they file their taxes, the timing is ideal for companies around Thailand to review and renew their internal accounting procedures.
For further information or guidance on how to move forward under the new regulations, please feel free to contact us.
PKF Thailand is located in Sathorn Square (Sathorn Road, Bangkok) and offers a full-range of accounting, tax, audit, and business support services.
Please contact PKF Thailand for further enquiries.
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