The Revenue Department's failure to collect 12 billion baht in tax from former prime minister Thaksin Shinawatra has shaken the public's confidence over the transparency, fairness and equity of the country's tax collection system. It stands as a reminder of the need for tax administrative bodies to be independent of political pressure.
Thai agencies in charge of collecting taxes have long been prone to political interference as well as the influence of the private sector.
De-politicising the country's tax administration, now handled by the Revenue Department, the Excise Department and the Customs Department, can build public trust and encourage all individuals and businesses with taxable income to pay their taxes.
Wichit Chantanusornsiri is a senior economics reporter, Bangkok Post.
As the end-of-month statute of limitations for the Thaksin tax case approaches, the government this week instructed the Revenue Department to expedite its efforts to collect the money. It remains to be seen how the tax authorities proceed.
The tax case began in 2006 when Thaksin's two adult children, Panthongtae and Pinthongta, sold Shin Corp shares to Singapore's Temasek Holdings. The siblings bought the shares from Ample Rich Investment, an offshore holding company controlled by the Shinawatra family, at a price of 1 baht per share. They later sold the shares to Temasek for 49.25 baht each, reaping some 16 billion baht in benefit.
But the pair did not submit this income as part of their annual earnings for tax evaluation. During that time, Thaksin was prime minister. And when the case came to light, the tax agency ruled in favour of Thaksin's children, insisting their capital gains were not liable to tax, so they were not considered as having evaded tax.
But a different decision was made when a new ruler took over. After the September 2006 coup that deposed Thaksin and his government, tax authorities backtracked on their decision and demanded taxes including interest and fines totalling 11.5 billion baht from the Shinawatra siblings who consequently filed a case with the Central Tax Court seeking revocation of the tax payment order.
The court ruled in favour of the pair, citing the Supreme Court's Criminal Division for Holders of Political Positions' 2010 ruling on a separate Shin Corp share concealment case which stipulates Thaksin was the real owner of the shares, not his children.
As they were not the real owners, the pair did not benefit from the capital gains and so were not liable to pay tax on the earnings. The tax agency then decided to abide by the ruling and has never appealed.
This high-profile tax case shows that this and other tax collection systems in Thailand are still susceptible to political pressure. It reminds us that we need a new tax administration model that allows tax officials to work in a more independent and straightforward manner in accordance with the law, notwithstanding who holds power in the government.
Tax revenue collectively account for about 85% of the country's gross earnings. The Revenue Department alone contributes 60% of the government's gross income.
Pan Ananapibut, director of the Tax Innovation Division of the Fiscal Policy Office in 2015, has proposed Thailand adopt a tax administration model known as a Semi-Autonomous Revenue Agency (Sara), which would be a new body independent from the Ministry of Finance.
This semi-autonomous tax agency would be in charge of collecting all types of taxes without political interference. As of 2010, there are 45 developed, developing and underdeveloped countries which have adopted such a model.
A key principle of this model is the separation of tax policy and tax administration. It will help professionalise tax administration. The countries adopting this model believe in the autonomy of tax agencies because they can assure taxpayers that political interference will be kept at a minimum or become virtually nil.
Under this model, a revenue agency will hold autonomous legal status without the direct supervision and control of the state. There might be a committee, whose members are appointed by the state and private sectors, which audits the agency.
The tax agency will also have its own budget which can be allocated from part of its revenue. This would make the agency financially independent with the financial flexibility to attract high-calibre professionals to work for it by offering competitive salaries.
Recruiting competent personnel is important for the agency to handle the evaluation of increasingly complicated financial transactions. It will be a worthy investment given the amount of revenue the tax agency generates each year.
More importantly, executives of the organisation will be free from political pressure and interference, with a definite term in office. They can remove under-performing and incompetent staff. But they will not be removed by an order of a government.
A number of changes have been carried out by these tax agencies in their efforts to enhance effectiveness and transparency.
For example, the Revenue Department has introduced a single account system to close loopholes in the collection of corporate taxes and encourage small- and medium-sized businesses to join the system. Electronic processes have also been introduced for tax collection to strengthen tax investigation and prevent tax evasion. These new features also make tax payment easier and more convenient for taxpayers.
De-politicisation of tax administration will further enhance effectiveness and transparency. In return, taxpayers will feel the country's tax administration system is fair to all.
It will encourage all people with taxable income to enrol in the system and refrain from evading taxes through illegal means.
Once everyone pays tax, they will become more politically active and aware of how their money is spent in developing the country.