Closing the cash tax evasion loophole
The Revenue Department believes it can improve the government’s taxation collection base by about 300 billion baht a year from early in 2014 by the introduction of cash-receipt and tax-invoice matching systems. That amount would equal almost a 17 percent increase in overall revenue collection.
The Revenue Department is well aware that the biggest collective drain on the potential taxation base is the use of cash transactions. Equally, the department’s officers are well aware of the numerous businesses where cash is the primary income stream and, well aware of human nature, how the cash returns are not usually fully declared.
Among those with predominantly cash transactions are restaurants, both big and small, and ranging from simple street-side stalls to elegantly-appointed outlets in plush malls, and health and beauty salons and massage centres.
If a registered business claims an annual turnover of less than 1.8 million baht, it does not have to register for value added tax (VAT). In other words if a business takes less than 5,000 baht a day in revenue it does not need to register for VAT.
Naturally enough, there are large numbers of street vendors who would fall into this category, but many who would take up to 3-4,000 baht on an average day. Arguably, the vast majority of these are not paying much in the way of tax and the Revenue Department believes their cash-receipt and tax-invoice matching system will catch a lot of these.
The cash-receipt system can be used by Revenue Department officers to track expected income in cash-heavy businesses. Most businesses need to purchase stock to either sell to their customers (for example, food) or use within their business to attract customers. By tracing the sales of goods and materials via the VAT tax invoice system and matching those sales with the purchasers along the supply chain, the Department believes it will be able to collect more revenue more precisely.
As it notes, a tax invoice for a purchase made by a company is a sales transaction for another company. By matching the pair it should be simple enough to see who has paid tax and who hasn’t.
In a stick and carrot approach the Revenue Department is hoping to encourage voluntary entry into the system by possibly allowing certain expense claims as tax deductions.
The Department says it is currently about 5.4 percent up year-on-year in its revenue collections for 2013. A spokesperson for the Department said it had set a target of 1.77 trillion baht for collection during the current fiscal year.