Accounts savvy SMEs to gain tax cut

In a further effort to help stimulate the economy, the Finance Ministry has asked the cabinet to approve their proposal to cut the corporate income tax rate for small and medium enterprises (SMEs) from 15 percent to 10 percent. The proposal will only apply to those SMEs which improve their accounting procedures to a standard set by the Finance Ministry.

Under the new proposal, SMEs earning a net profit of 300,000 baht per year or less (or the equivalent of just 821 baht a day or less) will not be subject to tax. For those earning 300,001 to three million baht a year in net profit will be subject to just 10 percent income tax.

The Finance Ministry classifies SMEs as those companies or organisations with a paid-up capital of five million baht or less, and annual sales revenue of 30 million baht or less. Business entities which have sales exceeding 30 million baht per annum are considered large corporates and hence subject to a 20 percent tax rate.

According to figures from the Finance Ministry, Thailand presently has 2.7 million small and medium enterprises and around 80 percent of these have never paid any corporate income tax. As with SMEs the world over, there is a tendency to have two sets of accounts: the first is the ‘real’ income and outgoings and the second is the set which is submitted to the Finance Ministry.

According to reports from the Finance Ministry, once the new measure is in place only those SMEs which keep one set of accounts, in other words, the ‘real’ set, will be eligible for the lower tax rate. Just how the government will be able to assess if an SME is indeed just keeping one set of accounts is not explained.

Nonetheless, there are many SMEs across the country who are simply not registered as such within the current corporate tax regime and this proposed reduction should encourage them to enter the formal tax system.

Once SMEs are fully registered into the tax system the Revenue Department will help formulate their accounting system and combine with officials from the Bank of Thailand and other bodies to audit them for loans to help expand their business.

There was a suggestion that SMEs be given a tax amnesty, but the Finance Ministry did not agree with this as it would not help to bring them into the tax system.

According to Finance Ministry figures, the new SME tax rate would cut the ministry’s annual tax revenue by five billion baht from its average of 30 billion baht. Of course, if it succeeds in bringing in sufficient numbers of ‘outlier’ SMEs then this figure could well be reduced substantially.