BANGKOK— A dispute in the Thai government over the interpretation of a tax payment that has saddled a number of companies with additional liabilities could dampen future investment in a country that has become a key production hub.
The Board of Investment and the Ministry of Finance’s Revenue Department had long disagreed over how to handle tax breaks on projects under the Investment Promotion Act. The board allowed companies to apply tax exemptions separately to each of their qualifying projects in the country, while the finance ministry argued that exemptions should come into play only after a company had first consolidated profits and losses on qualifying projects.
The two views coexisted uneasily for more than a decade, with many companies following the recommendation of the investment board, whose method resulted in a lower tax burden.
But in 2008, the ministry demanded an additional 500 million baht ($14.4 million) or so in tax payments from a local unit of Japanese bearing maker Minebea. In a move that surprised most observers, the Supreme Court sided with the ministry earlier this year. The prevailing understanding of the tax system — an important determinant of corporate strategy — was abruptly thrown out the window.
The government has since pushed for businesses to voluntarily pay any additional liabilities due under the ministry’s method. The ministry said some 50-60 companies have come forward, paying a total of about 4 billion baht. Among them is Japanese cable maker Fujikura, which shelled out roughly 900 million baht. The Federation of Thai Industries puts the number of affected businesses at more than 100, suggesting that the story is far from over. (Asia Nikkei)
