SME taxation axe threatens to kill golden goose

The Revenue Department has turned up another hot spot for the government by issuing a stern warning to small and medium-sized enterprises (SMEs) that they could face a jail term of up to 20 years for failing to fully abide by new rules and regulations on taxation within the next couple of months.
The threat is similar to the one aimed at migrant workers and their Thai employers last month, when the government abruptly decreed hefty financial penalties as well as prison terms for those found violating the new foreign-labour law. Thai employers suddenly found themselves facing fines of up to Bt400,000 per migrant worker and/or time in jail if they failed to fully comply with the law.
The stringent measure, though an excellent step towards Thailand’s international commitment on labour laws, was announced hastily and without the transition period that would have allowed businesses and migrant workers to adjust. The resulting exodus of workers caused chaos in sectors of the economy with a high dependence on migrant labour. Prime Minister Prayut Chan-o-cha was eventually forced to postpone enforcement of the new law by six months to allow more time for all parties concerned to prepare.
The principles behind the Revenue Department’s new announcement on SME taxation are likewise sound, since tax revenue and its efficient collection are the key component of the government’s fiscal resources. However, it is highly unlikely that hundreds of thousands of SMEs will be able to get their act together in just a few weeks.
SME businesspeople and auditors report they have been warned by authorities that the tax law would be strictly enforced from October 1, the start of fiscal year 2018. From that date, a single violation – such as use of illicit documentation to deduct business expenses and thereby pay less or no income tax – could lead to a seven-year jail sentence on top of a hefty fine.
The news triggered an outcry from accounting firms and auditors who handle accounts for SMEs, since they will be subject to similar punishment. The government’s intention to strictly enforce the Revenue Code is laudable in principle. But the devil is in the deadline: more time should be given for the parties concerned to make the necessary adjustments.
Unless the grace period is extended from the current two months or so, to at least the start of 2018, SMEs across the country will suffer.  In the meantime, more seminars, public relations and other educational campaigns would familiarise old-fashioned SMEs – which often tend to evade taxes – with the new legal and ethical standards being set by the government for a more sustainable economy.
At a rough estimate, some 60 per cent of Thai SMEs are run according to traditional business practices, with a variety of methods employed to either evade tax or avoid paying it altogether. However, the taxation ecosystem is changing rapidly thanks to the ever-widening use of electronic payment methods. Soon it won’t be possible for these businesses to survive for long without paying proper tax.
Accordingly, the older generation of small-business owners must now adapt to a new and unfamiliar world of transparent taxation, and they deserve time enough to reform old habits, rather than being slapped with an abrupt warning of imprisonment. In the end, it the government is unwise if it thinks it can issue such a threat without doing serious damage to the golden goose.