Tax authorities to plug loophole exploited by the rich

The Revenue Department is set to close loopholes in laws exploited by the rich for tax evasion.

"There has been a popular practice among high-income earners to form non-juristic partnerships, or bodies of people, for the purpose of tax planning, helping them to pay less personal income tax," a draft Revenue Code proposal obtained by The Nation said.

Partnerships of a group of two or more people are not corporate entities, but they have been allowed as a tax entity for 50 years. They are required to pay annual personal income tax, but not corporate income tax.

Back in 1953, the government wanted business to be easier and tax payments to be convenient. So, partnerships, including groups, were granted tax entity as individuals who paid personal-income tax.

As Thailand developed economically and many new types of businesses emerged, wealthy individuals turned to this tax entity by using it as a tax-planning tool, effectively reducing their tax bills.

Because personal income tax has progressive rates ranging from 10 per cent to 37 per cent of income, the rich fall in the highest bracket.

To avoid it, they set up several partnerships, then paid less tax because lower incomes are subject to lower taxes. They enjoyed more tax allowances, further reducing their tax bills.

According to the Revenue Code, each taxpayer gets a personal allowance of Bt30,000. The partnership is also granted a personal allowance of Bt30,000 for each partner, not exceeding Bt60,000.

So when high-income earners set up partnerships, they received more tax allowances while an individual who does not create a partnership gets only a Bt30,000 personal allowance.

The Revenue Department commissioned a research. The first draft was handed to the department last week. The draft proposes two approaches to tackle the issue.

One is to cancel the tax entity of partnerships, or a group of people.

Profits deriving from these associations add to each person's annual income that is then subject to personal income tax. The partnership itself can no longer pay tax.

"This is the best choice for the department," according to a tax expert.

The other is to cut tax allowances granted to partnerships and groups. So, each person would receive only the Bt30,000 tax allowance.