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Firms unclear and resentful over levy

by Daran Chudasri and Smarn Sudto

Confusion is expected to hit hundreds of thousands of businesses nationwide today when a new withholding tax comes into effect. Banks, freight operators, brokers and trucking firms alike have asked the Revenue Department to clarify details and delay the launch of the new tax.

Cabinet ministers last month agreed to assess a withholding tax on six new categories to lift the country’s tax base and cut down on evasion. The new transactions to be covered are brokerage fees, patent and copy right fees, interest charges on loans, transport and warehousing service fees, insurance premiums, and prizes given to winners of draws or similar activities. Tax ranges from 1% to 3%.

Corporate clients paying service fees could be liable for deducting withholding tax on behalf of banks. The Thai Bankers’ Association has also sought clarification from authorities of their own duties, noting that financial institutions already pay specific business taxes and thus should be exempted from the withholding requirement.

Teeranun Srihong, first senior vice-president at Thai Farmers Bank, notes that the administrative costs of implementing the new withholding tax are potentially massive. Most banks typically deduct service charges directly from bank accounts as needed. 

But a withholding tax could force customers to go right to the counter to show their tax ID numbers and receive receipts. “The private sector is trying to downsize and streamline operations by moving to electronic transfer. But this tax will force customers to physically go to the banks and fill out more paperwork,” Mr Teeranun said.

Nearly all financial services, whether cash management, trade finance, retail, corporate or investment banking, involves service charges potentially liable under the hew tax requirement. Local banks have been notifying client’s about the new tax and what is needed to comply with the law.

Members of six associations involved in customs brokerage and freight forwarding have also been left confused about the new withholding tax. The associations have told members to delay issuing new bills of lading, brokerage fee receipts or other transactions until authorities clarify how to implement the tax in practice. The associations, including the Thai Licensed Customs Brokers and the Customs Broker and Transportation Association of Thailand, plan to ask the Finance Ministry to delay implementation until January to allow operators time to comply; as well as ask for a reduction in the tax to a flat 1 %.

Bangkok Post, July 16, 2001

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