Low-capital firms face end to interest deductions

“Indebted companies, say those with a debt-to-equity ratio of more than 3:1, may no longer be allowed a tax deduction on interest payments,” Satit Rungkasiri, the department’s director-general, said yesterday.
Companies with little capital that rely heavily on large loans pose risks to both creditors and financial stability, he said. Those firms also pay less tax, as they enjoy large deductions on interest payments.
Some countries limit such companies’ tax deductions on interest or do not allow deductions on loan services, he said. Such tax rules discourage firms from too much borrowing, Satit said.
Taiwan has had such tough tax rules in place for a long time. “Taiwan escaped the 1997 Asian financial crisis since companies had a relatively low level of debt, resulting in immunity from the crisis,” Satit said.
At that time, many Thai firms and financial institutions were bankrupted because of high debts, particularly from foreign sources.
Satit also warned those who do business via the Internet to pay tax properly.
“Those who [cooperate] with the Revenue Department will not face back taxes, but those who are approached by tax authorities will face back-tax penalties,” he said.
Companies must file their tax payments next month, and those that were not affected by the flood disaster must not take advantage of tax breaks for flood victims, he said.
The department targets corporate-tax collection worth Bt599.8 billion for the current fiscal year. It will meet its target despite tax breaks offered to flood victims, Satit stressed.
There are about 400,000 companies in Thailand, but 4,000 large firms account for half of corporate-tax income, he said.
Companies filing taxes via the Internet will be allowed to delay their payments for two months, Satit said. The new incentive aims to encourage firms to file online. Previously only 2 per cent of companies filed their taxes by electronic means.
The department also plans to close tax loopholes on people who form groups to avoid full tax payment, he said.
In a related development, the Revenue Department is seeking a double-taxation agreement with Cambodia as part of the effort to prepare for the Asean Economic Community, Satit said.
He said Thailand had signed tax treaties with most Asean countries to lessen the burden of the private sector paying double taxes, to both the host countries of their investments and their homelands.
“We’ re trying to reach a double-taxation agreement with Cambodia but the country has insisted that it never signs such tax treaties with other countries,” Satit said.
The department is also considering whether to scrap some rules such as that imposing tax on personal income from overseas. Currently those who receive income from overseas and stay in Thailand for at least 180 days in that year have to pay tax on that income.