Against the backdrop of the coronavirus crisis, income uncertainty has become heightened and some individual taxpayers may be tempted to put income tax planning on the back burner.
One should not put off tax-saving moves till the end of the year, however, as deferring tax planning could lead to either falling short of the amount required to save, or buying the wrong product to lower tax bills, or even losing the savings opportunity offered in a specific period.
Sathit Pongtanya, first senior vice-president and head of estate planning and family office in the private banking division of Siam Commercial Bank, says there are three aspects that should be taken into account when planning individual income tax management: tax deductions and allowances, final tax, and received income.
Individual taxpayers can treat withholding tax paid at 10% for income from dividends and 15% for income from interest as final tax, which enables them to exclude income from personal income tax returns and forgo the withholding tax as a tax credit.
Income earners who are single or have no children, and earn up to 310,000 baht a year or 25,823 baht a month, can reduce their income tax liability to zero by fully utilising the tax-free personal allowance and deductible expenses.
Each taxpayer can claim a personal allowance of 60,000 baht and a 50% income deduction but not exceeding 100,000 baht. Other standard allowances are child and parental care allowances.
In the case of elderly starting from age 65, they are entitled to a maximum 190,000 baht of income exemption on top of standard allowances.
Income tax changes
For the 2020 tax year, there are some changes in tax-deductible contributions to tax-savings funds after the tax privilege for long-term equity funds (LTFs) lapsed at the end of last year.
The cabinet in late 2019 approved the Super Savings Fund (SSF) as a new tax-saving fund to replace the LTF. To eliminate criticism of LTFs that income earners with high tax brackets gained greater benefits from the LTF's tax shield than lower-income earners, the tax-deductible amount for SSF contributions has been tweaked.
The new tax-saving fund's ceiling contribution entitled to a personal income tax deduction has been raised to 30% of annual income, while the maximum amount is capped at 200,000 baht, whichever is lower. Reducing the cap for a tax-saving fund means high-income earners see less of a tax deduction, while lower-income earners could benefit because the percentage of annual income has been doubled to 30%.
In comparison, individual taxpayers can deduct up to 15% of total annual income, or a maximum of 500,000 baht a year, whichever is lower, for LTF contributions.
The combined amount for contributions to SSFs, retirement mutual funds (RMFs), provident funds, the Government Pension Fund (GPF), the National Savings Fund (NSF) and pension insurance premiums must not exceed 500,000 baht -- unlike investment in LTFs, which did not need to share the tax-deductible amount with other tax-saving items.
The SSF is considered a less stock-market-friendly fund, as its investment conditions are more relaxed than those for LTFs. The new tax-saving fund is allowed to invest in any assets, while LTFs stipulated equities as the major investment asset.
The lock-up period of the new tax-saving fund is lengthened to 10 years from the date of investment, compared with seven calendar years for LTFs.
For example, those who buy an SSF on May 15 this year must hold the units until May 15, 2030, while those who made an LTF investment in December 2019 are able to sell the units from Jan 1, 2025.
As with LTFs, there is no minimum contribution requirement for SSFs, and individual taxpayers are not required to make continuous contributions.
Several changes have occurred during the coronavirus outbreak, including the ability to claim up to a double deduction for donations to hospitals to combat Covid-19, as well as raising the maximum tax deduction for health insurance premiums to 25,000 baht a year from 15,000 baht in the past. But total tax-deductible premiums paid to life protection products with at least 10-year terms and health insurance are still capped at 100,000 baht a year.
Risk-related allowances paid by the Public Health Ministry to front-line healthcare professionals, including doctors, nurses and hospital staff, are tax-exempt for this tax year, Mr Sathit said.
To shore up the stock market, the government is offering an additional 200,000-baht tax-deductible contribution to Super Savings Fund extra units (SSFX) for individual taxpayers who buy the fund's units from April to June.
SSF versus SSFX
Some income earners may be confused about SSF and SSFX. Both have the same minimum holding period of 10 years from the unit purchase date. But the contribution to SSFX must be made between April 1 and June 30, while income earners can invest in the SSF until the year-end for a tax deduction in 2020.
Tax-deductible contributions for SSFX are restricted to this year, while those for the normal tax-saving fund are available until 2024.
SSF asset allocation is more diversified than the SSFX's, of which 65% is required to be invested in local equities.
At present, 18 SSFX offerings are available, with two each from Krungthai Asset Management and MFC Asset Management; three from SCB Asset Management; and one each from Krungsri Asset Management, Kasikorn Asset Management, Tisco Asset Management, Thanachart Fund Eastspring, Bualuang Asset Management, Phatra Asset Management, UOB Asset Management, Land and Houses Fund Management, One Asset Management and Asset Plus Fund Management.
Since both SSF and SSFX have a lock-up investment period of 10 years, Mr Sathit recommends that taxpayers who plan to put money into both fund types buy units of those with a dividend payment policy, in order to get some money back.
Tax-saving tips
For tax-deductible investments, Mr Sathit says individual taxpayers should prioritise endowment insurance policies, given their features of principal-protected investment and a tax-deductible amount of up to 100,000 baht -- which is separate from the maximum 500,000-baht tax deduction benefit shared for contributions to RMFs, pension insurance, provident funds, the NSF, the GPF and SSFs.
To be entitled to a tax deduction, taxpayers must take out endowment insurance with a maturity of at least 10 years.
Mr Sathit says taxpayers age 45 and up should focus on contributions to RMFs and provident funds, rather than SSFs, as they can start to redeem both provident funds and RMFs for contributions made for at least five years when they turn 55, while SSFs have the 10-year lock-up.
RMF unit holders, however, are prohibited from skipping a purchase for longer than one consecutive calendar year.