Proposed changes in corporate tax filing raise questions

Proposed changes in corporate tax filing raise questions

What if a company were required to file a corporate income tax return for each place of business using the same method as for filing a VAT return? As provocative as it sounds, the question is no longer hypothetical.

Last month, the National Legislative Assembly considered a report from the Economic and Finance Commission that proposed tax structure and management reforms to increase the efficiency of national revenue collection. Among its many proposals was one relating to the method of computing corporate income tax (CIT) and filing tax returns.

The commission proposed that the Revenue Department take into account the many places of business where a company or juristic partnership operates and have it separate the income and expenses for each place of business and pay tax in each area where the business is located.

This proposed method would be somewhat similar to the one used for filing value-added tax (VAT) returns. Under the law, if a VAT registrant has several places of business, tax returns must be filed and tax paid separately for each place of business. Nevertheless, the law allows the filing of returns and payment of tax at a single district office if the VAT registrant has been authorised to do so.

In the case of filing CIT returns, the law currently requires companies to file and pay tax on the net profit arising from all places of business.

What is the purpose of this proposal to change the method for computing tax and filing CIT returns? Is it designed to increase revenue for local municipalities? If so, there should be more clarification of why and how the tax collected will be distributed.

The VAT law clearly spells this out. VAT is a consumption tax, so it is taxed where the consumption takes place. The rate of 7% is divided into two parts. The first is levied by the government authority under the Revenue Code at the rate of 6.3%. The second is levied by the central authority of the municipalities at 0.7% (one-ninth of the VAT rate).

Unlike VAT, CIT is levied on the ability-to-pay principle, based on net profit in accordance with the conditions of the Revenue Code. If the proposed changes were approved, what would be the impact? Issues likely to affect companies when computing their tax and preparing returns could include:

Place of business: Will this be the same as under the VAT law, where a place of business is clearly defined as one regularly used by a supplier for conducting business, including a place used for the manufacture or storage of goods.

If this is used for CIT, the anticipated purpose of increasing revenue may not be achieved in the case a non-revenue generating place of business, such as a warehouse. But if the place of business only means one that generates revenue, how would the expenses of a non-revenue generating place be allocated when computing CIT liability? Should they be consolidated with the tax return of another place (the head office or other branch) or should they be allocated to all places of business? If part of the place of business can be consolidated, tax administration would be rather complex.

Different methods of allocation would result in different amounts of tax being collected by each area office of the Revenue Department. In addition, the new law would need to consider how to deal with a loss at a place of business.

Allocation of expenses: Generally, a company incurs certain expenses for the benefit of all places of business, for instance those relating to salaries of top management, interest, marketing expenses, IT, management fees charged by an overseas parent, corporate social responsibility, and so on. If the law requires a company to segregate its income and expenses between each place of business, how should the aforementioned expenses be allocated? Should they be based on the revenue of each place of business?

If the allocation of expenses turns out to be incorrect, the tax liability at each place of business will also be incorrect. In this case, would the company be subject to multiple tax penalties and surcharges?

Preparation of financial statements: The Revenue Code requires juristic companies and partnerships to prepare a statement of financial position and profit and loss account for each accounting period for the purpose of computing CIT. These statements must be certified by an auditor. Changing the method of computing tax would also affect the way financial statements are prepared.

From the above, we can see how companies with several places of business would be affected by a proposal to change the method of computing and paying CIT. The result would be an increase in the time and cost of preparing accounts, tax computations and returns.

Moreover, companies may have tax exposure leading to penalties and surcharges if tax is incorrectly computed. Many SMEs still consider that complying with the current tax law is difficult enough so they outsource it to professional firms. Will this change increase the professional fees they must bear? Eventually, would the proposed change really benefit the country and the national economy?

Written by Cheevanan Niyomtrong, senior manager for Tax & Legal Services, PwC Thailand. We welcome your comments at

Do you like the content of this article?

Japan to reopen to all long-stay foreigners

TOKYO: Japan will reopen its borders for all foreign visitors with permits to stay in the country for some time, including students but excluding tourists, from October, Prime Minister Yoshihide Suga said on Friday.


PTT staff to get B5,000 travel subsidies

The national oil and gas conglomerate PTT Plc has set aside 18 million baht for 5,000-baht travel subsidies for its employees, to boost local tourism in the fourth quarter.


State of emergency, controls on visitors for review on Monday

The pandemic situation panel will consider the issue of extending the state of emergency and review regulations for visiting business reps and tourists on Monday.