1.1. In the past decade Thailand has had a marked population increase and rapid social progress, which created greater and greater demand for higher government revenue. Therefore, the government's ability to gather revenue is probably one of the most important prerequisites to successfully develop the country. One of the foremost tools that helps satisfy this demand is taxation. Taxation in Thailand has become consistently important as the main source of government revenue. Tax revenue represents approximately 90% of government revenue. The increasing importance of tax revenue can be seen in terms of GDP. Tax revenue as a proportion of GDP rose from about 15.7 per cent in 1989 to 17.1 per cent in 1993.
1.2. Taxation serves not only as the main source of government revenue but also the important instrument in designing economic policy. Equally important is efficient tax administration to help achieve tax policy objectives.
1.3. There are numerous agencies responsible for collecting various taxes and duties because of the diversified nature of the tax collected. The taxes imposed range from typical taxes such as Income Taxes, Value- added Tax, Custom Duties and Excise to taxes such as Alien Registration Fees and Fishery Duties. These taxes are administered by a number of departments under the Ministry of Finance, the Ministry of Interior, the Ministry of Commerce, etc. For many of these departments, tax collection is not one of their main functions.
1.4. A large part of tax collection comes from three main agencies, namely the Revenue Department, the Excise Department and the Customs Department. These three agencies under the Ministry of Finance are together responsible for over 95 per cent of total collections. In 1993 tax collected by the Revenue Department accounted for 300,484 million baht*, or about 56.2 per cent of the total amount of tax collected.
1.5. The Office of the Auditor-General (OAG), being the Supreme Audit Institution of the country, has a vital role to play in improving the efficiency and the effectiveness of all these tax collection agencies so that the government will earn more revenue to successfully develop the country.
2.1. Government revenues consist of taxes and duties, sale of goods and services, share of profits from state enterprises and other revenues. The composition of each category of revenue is as follows:-
1. Taxes
1.1. Direct Taxes
1.2. Indirect Taxes
* Exchange rate for different currencies vis-a-vis the US $ as on 31st March, 1997 are indicated in Appendix 1 (Pg.475)
2.2. The Revenue Department's tax rebates and the export duties compensation are deducted from the gross tax revenue.
3.1.1. Sale of properties, natural products, securities, official publications, miscellaneous items and official cars
3.1.2. Sales of services and rent income
4.1. They inclue profit from government-owned businesses and dividends from other businesses
5.1. They comprise stamp duties and fines, refunds, proceeds from issuing coins, interest income and miscellaneous items.
5.2. In 1997 it is estimated that taxes represent 90.3% (dierect taxes 28.79% and indirect taxes 61.51%) of estimated receipts, sales of assets and services 2.5%, incomes from state enterprises 5.6% and miscellaneous income 1.6%.
(1) Local Levied Taxes
(2) Surcharge Taxs
(3) Shared Tax
(4) Local Fees and Licences (garbage collection fee, licence for building construction, etc.)
(5) Revenue from Properties of the local government.
(6) Profit from Social Services (e.g. water works and pawn shops)
(7) ubsidy from the central government. 6. Landmark Judgements
6.1. There is a collection of major judicial pronouncements on taxation and case laws as a sources of reference for audit staff for correct application of laws by them. There is also a Thai Tax Code CD-ROM which contains a comprehensive tax code, international conventions and agreemnets and questions and answers on tax laws.
7.1. The revenue structure has gone through a radical change is the past 30 years. There has been a series of tax restructures to suit the prevailing conditions and the changing economy. These include the replacement of progressive rate tax collection with proportional rate tax collection, the introduction of special tax privileges for listed companies and the reduction of corporate tax to 30 per cent to cut production costs, the adjustment of personal income tax ceiling form 66 per cent to 37 per cent, the change from sales tax to value added tax of 7% (The new VAT rate of 10 per cent, with the exception of farm products, is in effect from 16 August 1996. It is hoped that the VAT hike will reduce the budget deficit and discourage unnecessary spending by the public.) in 1992, improvement of tax collection efficiency, the elimination of double taxation and a profound reform of the customs duty structure to support domestic production.
7.2. The reforms included the reduction of customs duties from the maximum 100 per cent in 1995 to 30 per cent in 1997 (the average rate will fall from 30% to 17% by 1999) and a reduction from 39 tax rates to only six (i.e. 0,1,5,10,20,30 per cent under the principle of Value Added Escalation). Customs duty rates have been restructured to meet the obligation under GATT/WTO and the ASEAN Free Trade Area (AFTA).
8.1. There have been many cases of fraudulent claims of huge amounts since the implementation of VAT in 1992. Following a request of the Cabinet, the OAG undertook an audit of Revenue Department VAT collections and refunds during 1992-1996 in order to determine the amount of VAT fraud which was initially detected by the Revenue Department Itself. Most of the Audit work was based on the checking and calculation of a sample of VAT claims. The audit revealed that the fraud cases involved:-
12.1. The tariff structure is classified according to the Harmonized System. The classification of Customs duty rates is as follows:-
0 per cent for goods under tax exemption
1 per cent for raw materials
5 per cent for primary products and capital goods
10 per cent for intermediate products
20 per cent for finished goods
30 per cent for goods under special protection.
12.2. Excise taxes are collected on 12 categories of goods, under cover of several excise acts. Excises include spirits, tobacco, petroleum, beverages, electrical appliances, air-conditioners under 72,000 BTU/hr, decorative lamps, crystal, passenger cars not exceeding a capacity of 10 seats, yachts, perfume and race course.
13.1. The audit of tax receipts is a statutory function of the OAG. It is specified in the State Audit Act B.E. 2522 (1979) that, among other duties, the OAG is to examine the collection of taxes, fees and other incomes of the audited agencies and to give an opinion whether it is in compliance with the laws, rules, regulations or resolutions of the Council of Ministers.
The scope of the audit is not confined to financial audit but could extend to performance audit and to investigate audit. The statute provides access by the OAG to individual assessment files. There are no legal constraints in relation to taxation audits.
14.1. Revenue audit is the responsibility of the OAG's various audit offices at the headquarters and of all 15 regional offices (OAG's regions offices are responsible for revenue audits of provincial and local authorities.) throughout the country. Audit teams of 2 to 4 people are assigned for audit at the auditee's premises. The audits undertaken are within the framework of an annual plan determining their scope and nature. Topics and agencies for audit are selected having regard to materiality and risk factors. In carrying out an audit, staff follow the OAG's audit guidelines on relevant taxes and other categories of revenue, which are tailored from commonly accepted audit methodologies. Apart from financial audits and performance audits, investigative audits are undertaken where there is inaccuracy or falsification in revenue collection.
15.1. The overall planning policy of the OAG is set twice a year - for the first half of the fiscal year (1 October -31 March) and for the second half (1 April - 30 September). This approach gives direction for the audit coverage. All audit divisions/offices and regional offices then develop a half year plan where they plan their audit work to conform to the established policy, taking into account their existing resources, both budget and staffing. At the operational level, each audit team plans their individual audits to ensure that audits are conducted properly.
16.1. An audit report containing audit findings and recommendations is prepared after completion of each audit and is submitted to the audited agency for corrective action to be taken. A copy of the report is also sent to the agencies concerned.
16.2. The OAG summarizes audit results in its annual report and submits the report to the Prime Minister for tabling at the Parliament.
16.3. The OAG can at any time bring significant audit results to the attention of the Cabinet in order to obtain Cabinet Resolutions for action to be taken by the relevant agencies.
17.1. OAG is at the initial stage of making an effort to apply IT audit techniques in revenue audit. Use of ACL audit software is under trial.
18.1. Audit staff assigned to revenue audit work receive training both in-house and outside the OAG to make them better equipped for their work. Particular emphasis is placed on tax laws as they are quite technical and complex in nature.
19.1. Thailand is a Unitary state which separates its administration between the central government (including provincial administration) and the local government. The tax system follows this concept and can be classified as national tax and local tax. National taxes go to the central government while local taxes go to the city (the Bangkok Metropolitan Administration or BMA and the City of Pattaya, which are the two special local self government units), the municipality, the sanitary district, the Provincial Administrative Organisation (PAO) and the Subdistrict Administration Organisation (SAO)
19.2. Implementation of all kinds of taxes must be based on related tax laws such as:-
19.3. Three government agencies under the Ministry of Finance, are responsible for collecting the bulk of national taxes:-
20.1. The major responsibilities of the Revenue Department are: collecting taxes in accordance with the Revenue Code and related laws; managing of tax collection according to regulations, rules and resolutions and reviewing tax structures for making recommendations to the Ministry of Finance on appropriate amendments. The taxes collected are individual income tax, corporate income tax, value-added tax, specific business tax, stamp duties, petroleum income tax, and bird's nests duties.
21.1. The Excise Department's main responsibility is to collect excise taxes levied on certain type of products and services. These are products and services the consumption of which may be harmful to health and public morals, luxury goods and products receiving special government concessions or other preferences.
22.1. The Customs Department's responsibility encompasses collecting tariffs and various duties, preventing and suppressing illegal trade, promoting exports through tariff measures, making recommendations on and implementing tariffs measures, preparing import-export statistics and other related information, and cooperating with foreign agencies to exchange information and prevent various crimes. Revenue collected on imported and exported goods includes customs duty, value added tax for the Revenue Department, excise tax for the Excise Department, municipal tax for the Interior Ministry, surcharges under the Investment Promotion Act, and charges and fees under Customs and related laws.
23.1. Since taxation is the main source of government revenues and is used to achieve socio-economic objectives, the OAG finds it necessary to give due importance to 'tax audit' and training of audit staff to discharge the audit work effectively. It is through audit that the OAG could suggest ways and means to improve tax administration to ensure full tax collection and to bring the government more revenue.