Thailand: BoT steps in on withholding tax

The Bank of Thailand has coordinated with the Finance Ministry on probing a commercial bank that reportedly helps customers avoid paying the compulsory 15% withholding tax deducted from deposit interest income.

“The Bank of Thailand acknowledges such undesirable behaviour was committed by a commercial bank and is looking into the incident to see if it is only a case of a particular bank, branch, or certain bank official offering a special service for major clients,” said Ronadol Numnonda, assistant governor of the supervision group at the central bank.

“The central bank will coordinate with the Revenue Department to examine if other commercial banks have adopted such a practice.”

The Bank of Thailand will also order commercial banks to strictly comply with tax regulations, he said.

The move came after Finance Minister Apisak Tantivorawong pointed out some commercial bank officials had been helping their customers avoid paying tax by exploiting the 15% withholding tax exemption on interest income of up to 20,000 baht a year.

The tax waiver, which the Finance Ministry intended as an incentive to encourage people to save more, has been used by the rich to avoid tax legally, he said.

Mr Apisak said a practice had developed whereby bank officials would tell depositors to withdraw money from an account when the earned interest approached 20,000 baht. Depositors would then open a new savings account to avoid tax payment.

Although the Revenue Code offers a tax waiver for up to 20,000 baht paid as interest per year, some banks refrain from withholding the tax as long as depositors earn less than the 20,000-baht threshold, regardless of how many savings accounts depositors have open at other banks at the same time.

Mr Apisak, a former president of Krungthai Bank, has assigned the Revenue Department to find a way to close the loophole. The tax-collecting agency has proposed to two options: scrapping the tax exemption altogether, or letting authorities supervise banks and warn them against providing such advice.

Vorawan Tarapoom, chairwoman of the Association of Investment Management Companies, said it is reasonable to impose taxation on interest income as the government could use this money to invest in infrastructure projects.

The government needs a large amount of money to support several investment projects under the economic development road map, said Mrs Vorawan. Such a tax would not affect many people in general, she said.

“The existing infrastructure investment plan may require the government to collect more tax income. If the government cannot collect tax, it will search for other tax collection [measures] to support the investment projects,” said Mrs Vorawan.

If the government revokes the existing waiver for interest income for deposits up to 20,000 baht, there would not be a significant impact on money transfer from deposits diverting to mutual funds, she said.

Any depositor or investor will each have his or her own personal plan for investment depending on the risk and return each feels comfortable with, said Mrs Vorawan.

She said a financial institution can advise clients about savings and investment, but such advice should be legal and based on good governance.

Source: http://www.bangkokpost.com/business/finance/1331235/bot-steps-in-on-withholding-tax