IT’S BEEN a year since the two new laws affecting trade, the Excise Tax Act B.E. 2560 and the Customs Act B.E. 2560, were implemented.
So now might be a good time for the two departments to review the current situation, now that companies are more familiar with the changes. After all, the Customs Act was the first major rewrite for a hundred years and took several years of drafting and discussion to finalise. And the Excise Act fundamentally changed the way that tax was collected.
The new Excise Act moved from using a percentage of the ex-factory price (or CIF price for imports) to using a lower percentage of the Suggested Retail Price (SRP). The overall objective of the change was to be tax neutral, so the same revenue would be collected. However, the initial indications are that collections are slightly below the budget (by around 3 per cent). It is always difficult to accurately assess the immediate impact of a big change, as excise tax payers will set new retail prices depending on potential excise tax. In future, every retail price increase will mean a corresponding increase in excise tax. That means brand owners may try to absorb cost increases until they have no choice but to increase prices.
One of the other major changes to the Excise Act was a move to more checks on audit rather than at the time of tax payment. There has not been a lot of visible audit activity yet, but the Excise Department is asking questions on cost structures and that often indicates an upcoming audit. Controlling taxes after the payment point is usually more cost effective for a government and the taxpayer, so this is a welcome change in principle. However, we need to see the approach to audits before knowing the actual impact. There is always the possibility of lots of questions with the burden of proof on the taxpayer. An audit should require the auditor to have reasonable doubt on the correctness of the declaration and the taxpayer should have a suitable opportunity to defend their position.
Watch this space on how audits will unfold, particularly as the new rules allow Excise Officers a reward of up to 20 per cent of any fines, capped at 5 million baht per case. The recent changes to the Customs Act also limited rewards to this same level, but the Excise rewards are newer and so the incentive to audit is strong.
The changes to the Customs Act were more about modernising the old rules, and were well over ten years in the planning and drafting stage. Key changes included the capping of rewards for Officers and informants, and significant reductions on penalties in court. This means more cases will be able to proceed past the Customs led Board of Appeals (BOA) to a hearing in court, which is a very welcome development.
One unwelcome side effect of the update was the large number of assessments made just before the new rules applied, in an attempt to grandfather the uncapped reward regime under the old laws. Several of those assessments have now been withdrawn but others are proceeding to the BOA and may well end up in court where the new lower penalties will apply if the importer (or exporter) is found guilty.
Thai Customs is looking at further reforms, and is continuing the very encouraging process of engaging with key stakeholders including the business community.
There has been a very successful outreach program to various Chambers of Commerce and Thai companies. Any company having dealings with Thai Customs that gets the chance to comment should do so as it really does help to shape the end result – as recent consultations have shown – as long as there is a ready supply of patience.
The next challenge for both the Customs Department and the Excise Department is how to balance their role as tax collectors with the need to facilitate legitimate trade and reduce compliance burdens. The Excise Department is likely to see an increase in the numbers of products covered, given it is an efficient tax to collect. The big question is how the Excise Department will take the cost breakdowns they have into an audit environment. In theory, the retail selling price is as uninfluenced as prices can be, but it’s another case of watch this space.
The Customs Department has a bigger challenge on how to streamline trade. Investors are looking for locations that provide certainty, security and cost effectiveness, and the customs process is a critical factor.
As Free Trade Agreements reduce duty collection, Customs needs to carry on supporting businesses whilst making sure that everybody plays by the rules. That means more initial trust and audits focussed on risks. When the new Export Controls rules are applied, that risk profile will need to be updated, and companies will need to be prepared. After all, the penalties are likely to be very significant and the scope for regular businesses to be caught up in the requirements will be very high.
Contributed by PAUL SUMNER, Partner and WIPHAWEE RUNGWANITCHA, Senior Manager of Customs & International Trade, PwC Thailand