The Central Tax Court yesterday handed down a landmark ruling on the tax treatment of capital gains that could set a precedent for the state to go after the Shinawatra and Dama-pong families for unpaid taxes.

Ruangkrai Leekitwat-tana, who won his bid to have the Revenue Depart-ment tax him for capital gains from shares he bought from his father, said this was the first case to clarify the taxation of share transactions.

"As an accountant who has dutifully paid taxes, I think it's inappropriate to exploit my knowledge at the cost of society and the nation," he said.

From now on, revenue agents should be clear on how to calculate taxes on stock trades and this case should be applied to the transactions of Shin Corp's shares involving the family of deposed premier Thaksin Shinawatra, he said.

In 2003, Ruangkrai bought some shares at below par from his father and was taxed a year later. Then, the Revenue Department - through Suthep Pongpipak, an official at Revenue Office Bangkok 3 - notified him in writing that the purchase was in fact not liable for tax under the Revenue Code and sent him a tax refund cheque.

Claiming that the department was motivated by political concerns and wanted to justify its decision not to tax the Shinawatras, Ruangkrai returned the refund cheque. The department, in turn, claimed that he had a political agenda and refused to accept the Bt21,350 cheque. The argument ended up in court.

Five members of the Shinawatra and Damapong families were involved in the transfers of shares in Shin Corp but incurred no capital gains tax - Panthongtae Shina-watra and his younger sister Pinthongta, Yingluck Shinawatra, and Bhana-pot Damapong and his wife Busaba.

In 2000, when Thaksin sold his Shin Corp shares to his sister Yingluck, and his wife Pojaman sold her shares to her elder brother Bhanapot, the Revenue Depart-ment declared the transactions tax-exempt since the buyers had not yet realised any profit from the purchase of the shares. But when Yingluck and Bhanapot realised a profit by selling the shares, the two did not have to pay tax because the trading of shares by individuals on the Stock Exchange of Thailand is exempt from capital gains tax.

All five persons were not taxed for receiving the shares below par value. They were not taxed when they sold the shares in January at a huge profit at Bt49.25 apiece to a group of investors led by Temasek Holdings. It was estimated that they should have paid taxes of more than Bt20 billion for the combined Bt73.3 billion they received from Temasek.

In the Thaksin era, the Revenue Department ruled that share transfers involved in the sale of the 49-per-cent stake in Shin Corp by the Shinawatra and Damapong families did not incur any tax liability. The Revenue Department's position has been that, because the sale of shares did not show a realised gain, using a cash basis approach, the transaction was not liable for tax.

Ruangkrai noted then that the Shinawatra share sales conflicted with a letter signed in 2000 by Suparut Kawatkul, then director-general of the Revenue Department, that said the sale of shares under the market price still resulted in assessable income.

Ruangkrai said the department's justification for not collecting taxes due to a cash-basis transaction was incorrectly applied.

"If a buyer purchases something below market price, it is the buyer who benefits," he said.