Last week the Thai
government hosted a forum on regional tax policy in Asia. One would think
that a single market such as the ASEAN Economic Community would require
harmonization of tax laws and coordination in their application, but this is
not the case.
As reported in the Nation,
Prapas Kong-ied, a judge at the Central Tax Court, illustrated several
applications of national tax law which would appear to be inconsistent with the
aims of the AEC:
A Thai citizen, only
identified as Mr P, worked for a Thai company which had its business in the
Philippines. P lived in the Philippines for a whole year and he received income
from the parent company based in Thailand. The problem is to which country he
should pay tax. According to the Revenue Code, he was not resident in Thailand
that year, so he is not subject to tax payment. But when his parent company
paid his salary, the company levied withholding tax and transferred the
deducted money to the Revenue Department. Thai tax experts do not have the same
view about withholding tax. Some say there should not be any withholding tax since
the source of income is derived from activities in the Philippines. But the
Revenue Department insisted on collecting the tax. The dispute was brought to
the tax court, and the Supreme Court ruled in favour of the tax officials. With
the Philippines tax officials also collecting tax, Mr P found himself making a
double tax payment. Although the two countries have a double taxation
agreement, it cannot be enforced in this case as Mr P did not live in Thailand
in that year, so the agreement could not apply to this case, said Prapas.
Thus in this instance the
Thai national was penalized because his time working in another ASEAN country
did not count for purposes of residency in Thailand. Goods and services are accorded national
treatment within ASEAN, but evidently this principle does not apply for
determining tax residency.
Another example involved
value added tax:
Another interesting
case involves a Thai consultancy that provided advisory services to another
firm based in Indonesia about which Thai firms the Indonesia-based firm should
buy its products from. The Indonesian firm followed the advice of the Thai
consulting firm.
The Thai firm was
paid for its services. The firm thought that since it had exported its
services, it was not subject to a 7-per-cent value-added tax (VAT). But the
Revenue Department insisted on collecting VAT on the service by arguing that
the service took place in Thailand as the Indonesian firm had imported products
from a Thai firm. Prapas said that he
himself - as a judge at the Central Tax Court then - had ruled that the consulting
firm need not pay the tax. But the Supreme Court last month handed the final
verdict in favour of the Revenue Department.
This is another result which
may be consistent with national law, but goes against the concept of having a
single market. These problems in implementation
can be resolved by greater cooperation in ASEAN, such as a set of taxation
principles that would be followed by ASEAN national tax authorities.
Of course, this is easier
said than done. Even in the EU, harmonization of taxation is a controversial
concept. Individual member states wish
to set their own tax rates, set their own tax exemptions and pursue tax revenue
for their national treasuries. With a
single market in goods and services, taxation thus becomes one of the few
policy tools available to national governments to compete for investment. Similarly, corporate income tax rates in
ASEAN, like in the EU, vary:
ASEAN Member
|
Maximum Rate
|
Brunei
|
23.5%
|
Cambodia
|
20.0%
|
Indonesia
|
25.0%
|
Laos
|
35.0%
|
Malaysia
|
25.0%
|
Myanmar
|
30.0%
|
Philippines
|
30.0%
|
Singapore
|
17.0%
|
Thailand
|
30.0%
|
Vietnam
|
25.0%
|
Examined before deductions
and incentives, Singapore’s corporate tax rate is the lowest and would
encourage companies to book at least some of their profits in the city-state.
Hence tax coordination is
limited by these national goals, and explains why tax policy has remained
largely out of the scope of the AEC blueprint.
Long-term tax policy harmonization will be a long-term goal for the AEC,
something that will require both greater development of regional cooperation
and improved legal and regulatory infrastructure. As this has proven difficult even in the most
advanced regional market, it will be that more difficult for ASEAN. Yet it should be considered in the AEC’s
post-2015 planning.
