The Miracle of Taxation

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Published: 21 Mar 2017
at 04:00 / NEWSPAPER SECTION: BUSINESS

The Miracle of Taxation

Two hundred and forty years
ago, the renowned economist Adam Smith set out four canons of taxation in The
Wealth of Nations. A decent tax system, he wrote, should follow the standards
of justice, certainty, convenience and economy.

The first two canons are
regarded as the most important. Essentially, tax should be imposed in
proportion to the revenue the taxpayer actually earns, under the protection of
the state, and should be certain and not arbitrary. Laws based on these
principles should encourage taxpayers to voluntarily comply rather than scare
them off.

While the constitution
imposes a duty to pay tax, it is equally important that the law be enforced and
interpreted on a fair and equitable basis. This leads to two key principles in
tax administration: the state should not tolerate fraudulent practice by the taxpayer,
and the taxpayer should never be cheated by the state.

To put it another way, the
ability of the state to collect tax — whether the sum is 16 baht or 16 billion
— does not reflect a level of patriotism or dedication to the country. It is
far more important to implement the tax law correctly and fairly with a high
degree of justice and morality.

Setting aside colour-coded
politics and patriotism for a moment, how many people really understand Section
61 of the Revenue Code? You've seen it mentioned in the headlines lately in
connection with a campaign — its proponents claim to have discovered a
"miracle of law" — to collect money from a certain former prime
minister. Is it true that Section 61 empowers a revenue official to assess you
without the need to issue a summons?

The Revenue Code contains
three chapters with a total of 76 sections. The first chapter sets out general
principles, the second deals with tax assessment and the third with income tax.
Chapter 3 contains many provisions that empower the Revenue Department to
challenge a taxpayer on occasions where non-compliance is suspected.

For example, when there is
a transfer of assets, provision of service or lending of money without
remuneration, or with remuneration that is lower than the market price without
reasonable cause, an assessor may adjust the remuneration upward to the market
price pursuant to Section 65 bis (4). On the contrary, when a purchase is made
in excess of the normal market price without reasonable cause, the excess will
be denied as a tax expense pursuant to Section 65 ter (15).

Do any provisions in
Section 65 bis and Section 65 ter allow assessment officials to assess tax at
any time that the government wants, and without the need to issue a summons?
No. The simple explanation is that the provisions merely list the situations in
which the department is authorised to make an assessment.

However, Chapter 2 contains
rules concerning methods of assessment, including the requirement to first
issue a summons, and the limitation period for issuing a summons and/or
assessment notice.

This principle is
comparable to those of the Criminal Code. When you steal something and are
considered to have committed a wrongful act, the police can arrest you.
However, it is incorrect to consider only the Criminal Code provisions which
state that your action constitutes a theft and is wrongful. It is also
necessary to observe the Criminal Procedural Code to ensure that the arrest and
trial occur within the time limit set by the law.

So what about Section 61,
which falls under Chapter 3 of the Revenue Code? It sets out the rules that
apply where the name of a person appears in an important document with an
indication that (i) he is the owner of the property specified in the document
and such property generates assessable income, or (ii) he derives assessable
income by virtue of the document.

In such cases, "the
assessment official shall have power to assess and charge the whole amount of
tax on such income to the person whose name appears in such document. However,
if such person transfers the assessable income to another person, he is
entitled to deduct the tax amount imposed on the amount of assessable income
which is transferred to that other person".

It seems clear that this
provision was created to extend the authority of assessment officials to tax an
agent (or nominee) whose name appears as an owner of assets being sold in the
relevant document — instead of the principal owner of such assets (who can be
assessed under the general provisions of Chapter 3 anyway).

Setting aside this issue,
the question that is confusing everyone seems to be whether the authority to
assess tax under Section 61 can negate the provisions of Chapter 2 concerning
the issuance of a summons and assessment notice.

The answer is
"No", unless there is a specific provision in Chapter 2 that allows
the relevant authorities to disregard general rules. Basically, Chapter 2
allows assessments to be done in the following manner:

Assessment against a
manifest error appearing in a tax return pursuant to Section 18, which does not
require a summons;

Assessment made
"before" the due date for tax return filing pursuant to Section 18
bis due to some necessity or urgency, which has nothing to do with the case
before us (it deals with tax collection in advance); and

Assessment made after the
due date for tax return filing pursuant to Sections 20-21, which requires a
summons to be served on the taxpayer within the stipulated time frame under
Section 19: two years in general, five years for a tax avoidance case or a tax
refund, and 10 years in cases where no tax return has been filed.

If a tax assessment is to
be made in the case of the former prime minister, it will boil down to two key
assessment provisions:

Section 17 dealing with
manifest error as appeared in the tax return; or

Section 20 as regards facts
appearing outside the tax return, which requires a summons to be issued — in
combination with Section 61, but it cannot be Section 61 alone.

As it appears the Revenue
Department will be unable to resist pressure from the Office of the
Auditor-General and the government, an assessment notice may be expected,
regardless of whether revenue officials agree with it. In any case, it will be
interesting to see how the Revenue Department will apply Section 17 or Section
20 to the case given all the limitations surrounding it.

By Rachanee Prasongprasit
and Professor Piphob Veraphong. They can be reached at [email protected]

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