Thai Withholding Tax Rules Condemned As 'Confusing'

by Mary Swire, Tax-News.com, Hong Kong

13 September 2001

It appears that by issuing an explanatory letter 'clarifying' the rules of the new withholding tax regime which came into force in July, the Thai Revenue Department has merely succeeded in confusing taxpayers further.

Following the implementation of the new regime, there was initial concern regarding the interpretation of Clause 12/4 of Instruction 101/2544, which stated that: 'any payment that is subject to withholding tax must exceed 1,000 baht per contract, even if the payment is divided into several payments of less than 1,000 baht each'.

However, the Thai business sector complained, it was unclear whether the Revenue Department would apply the tax based on 1,000 baht per contract, or 1,000 baht per transaction, especially when the total payment amount, for example for a utility service contract, cannot be determined on the execution date.

The Thai tax authorities duly issued an explanatory letter to affected taxpayers, emphasising the fact that whether the transaction took part under the umbrella of a 'long-term service contract' was the important factor in determining whether tax should be withheld, with the provision of credit card services, mobile phone services, and money transfer services all falling into this category.

This seems to have made matters worse, however, as the explanatory letter has raised new compliance concerns. Thai companies and affected taxpayers have complained that although the Revenue Department uses the phrase 'long-term service contract' in several places, it never provides a clear definition of this term, or explains the criteria which will be used to differentiate between long and short-term contracts. The rules also give too much authority to auditors to decide whether contracts made with the same income recipient are similar in nature, according to the business sector.

Recommended