Tougher tax inspection: are YOU ready?

By Paul Gambles

The 2016 tax changes are about to come into full effect and could be tricky for SMEs which aren’t fully prepared.
Wherever you live, running a small business is never easy – I speak from a couple of decades of experience! One particular difficulty in Thailand is the tax regime: are you paying too much, or are you paying too little?

In an attempt to simplify tax declarations for SMEs – and ensure they’re paying enough tax, of course – the Thai Revenue Department (RD) launched single account registration in 2016. The principle of this is that a firm publishes just one financial statement for both bank loan applications and tax declarations so that a firm wouldn’t be able to modify its revenue declaration accordingly. For example, the registered 2017 financial statement will be used by banks and RD officials from January 2019. That statement can now also be communicated to other government departments if required.

This makes the system fairer for those who play by the rules and, to ensure all SMEs followed suit, the RD offered two incentives: a blanket 0% corporate tax rate for the 2016 fiscal year; and a 10% rate for any profits over THB300,000 in 2017. Watch out though, because in 2018 the normal 15%-20% corporate tax rates will once again apply.

That’s not all that’s new. The RD has also changed its inspection methods. Previously, it focused on a company’s net profit. If the percentage of profit it made was the same as the previous year, the firm paid the same amount of tax. Any issues would then be negotiated by the company’s appointed accountant.

The new method goes a lot more in depth. It looks at a firm’s risk assessment and its internal control; the financial ratio; the last filed financial statement and the past reliability of the firm and its accountant. Areas for inspection are the company’s assets; the methods it uses for receiving and paying money; bank reconciliations; the value of the loans it has taken out; the payroll; stock management; and its accounting. That’s not all: the RD says it will pay particular attention to sectors it deems at high risk of misleading tax declarations: such as hotels, restaurants, construction, and individual business owners.

This may all sound quite daunting but the best way to deal with the changes is to be prepared. That means making sure your firm meets the Thai accounting standard, appointing the right accountant and using the right accounting software.

There are some interesting new software products on the market. My firm is currently looking into providing one which allows our clients to send invoices, receive and make payments and give up-to-date balances at a tap of a mobile phone. Meanwhile, our accountants can use it to ensure clients’ financial statements are perfectly in line with the RD’s new requirements.

So, while it may not be easy to adapt to the RD’s new way of doing things, being prepared will reduce the risk of any nasty surprises.

Paul Gambles is the co-founder of MBMG Group

MBMG Group is an advisory firm that assists expatriates and locals within the South-East Asia Region with services ranging from Investment Advisory, Personal Advisory, Tax Advisory, Corporate Advisory, Insurance Services, Accounting & Auditing Services, Legal Services, Estate Planning, and Property Solutions.

For more information: Tel: +66 2665 2536; E-mail: [email protected]