COVID-19 delays Thailand’s tax reform plans

HLB Thailand Tax Team


The following article was first published in International Tax Review. For all articles authored by HLB Thailand for the International Tax Review, please click here.

Thailand’s economy is currently at its weakest since the 1997 Asian financial crisis. This has led the Thai government to put on hold its plans to undertake major reforms of tax policies.

Tax revenue collections in 2020–2021 have weakened due to the pandemic’s effect on businesses, especially those in Thailand’s hard hit tourism industry. The Thai government received approval this month to borrow another Baht 500 billion (approximately $16 billion) to fund the government’s projects for tackling COVID-19.

Thailand’s tax revenue collections in terms of its ratio to GDP is relatively low compared to OECD countries and this ratio has dropped further as a result of the pandemic. The tax reforms, now delayed to 2022, will aim to increase tax collections in the long term, against the backdrop of an ageing population and shrinking workforce.

Four goals for tax reform

Thailand’s Fiscal Policy Office has recently reported that the draft plan for tax restructuring for 2022–2026 will focus on four goals, namely:

  • Enhancing the country’s competitiveness to ensure sustainable economic growth;
  • Promotion of the digital economy, by deploying technologies to upgrade the country’s tax management system; promoting a green economy;
  • Encouraging people to reduce the use of products that could harm the environment; and
  • Ensuring fair treatment and transparency and promoting social safety nets and the health sector.

How these goals will be met has not been determined yet. The OECD has recommended that fiscal policy reforms focus on tax efficiency, increased compliance and less distortive tax bases.

Property tax reforms in force

A recent example of tax reform in Thailand is the new property tax legislation that came into effect in 2020, after numerous attempts over the years to reshape the way property tax is imposed in Thailand.

Under the new law, the types of property taxed is expanded, the government’s appraised value of the property is used as the tax base rather than its subjective rental value, and higher rates of tax apply for unutilised land to discourage land banking. The impact of the new tax has been muted so far, with the government implementing a tax cut of 90% for 2020 and 2021 due to the pandemic.

7% VAT rate set to continue

VAT forms a large part of the Revenue Department’s tax collections, making up 40% of its tax revenue target for the fiscal year ended September 30 2021.

Thailand’s VAT rate has been 7% for many years now. As the Revenue Code sets the standard rate at 10%, a Royal Decree is issued to reduce the rate to 7%. The latest Decree expires on September 30 2021, leading to speculation about a possible rate increase. The finance ministry has however confirmed it currently has no intention to propose a higher rate.

BEPS-related initiatives

One area of focus for Thailand’s Revenue Department has been the continued roll out of transfer pricing (TP) rules and guidance notes following the introduction of TP laws in 2019, as part of the country’s commitment to implement the OECD/G20 BEPS Action Plans.

The Revenue Department now has significant data about taxpayers’ related party dealings in Thailand, which is likely to be used in selecting taxpayers for TP audits.

In another BEPS-related initiative, starting from September 2021, foreign e-commerce businesses will be liable for VAT on services provided to customers in Thailand.

Thailand has one of the fastest growing e-commerce markets in South East Asia and the Thai government expects to generate annual revenue of Baht 5 billion from this measure.

Personal tax reforms to increase fairness

There is a relatively low number of registered personal income taxpayers in Thailand. Reforms are therefore expected to target improved compliance.

The pandemic has shifted more sole traders online, making their activities more visible. It has been reported that the Revenue Department aims to pull 500,000 individuals into the tax system, including online merchants and influencers, YouTubers and freelancers.

Personal tax rates in Thailand range from 5% to 35% whilst the standard corporate tax rate is 20%. Small and medium Thai companies meanwhile receive preferential tax treatment. The first Baht 300,000 of profit is exempt from tax, whilst the profit from Baht 300,001 to Baht 3 million is taxed at the rate of 15%.

The disparity in personal and company tax rates may entice entrepreneurs entering the tax system to consider trading as a company instead to pay less tax on their profits. A law has been drafted to allow single shareholder companies to be formed in Thailand, which would make it simpler for small businesses to operate as a company.

One of the reasons for the tax restructuring proposed for 2022–2026 is to increase revenue collections in the long term to meet the needs of an ageing population.

Thailand’s old-age dependency ratio, defined as the number of persons aged 65 and over relative to the 20–64 years old population, is projected to increase rapidly over the coming years. Greater demand is therefore expected to be placed on the social security system and the public health sector in the future.

The timing of any ambitious tax reforms will be dependent on how quickly the government can reign in the pandemic’s impact on the country’s economy.

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As the hospitality industry struggles, taxes are knocking on the door

HLB International Transfer Pricing Centre of Excellence


One of the long-term effects of the pandemic – besides the business effects that vary between different activities in the hospitality industry – are the tax consequences that result from the dramatic changes due to COVID-19.

The hospitality industry in general, was performing at a great level until December 2019, while the pandemic was in gestation. Hotels, restaurants, adventure activities, airlines and all related services attached to that “normal” situation were in a booming stage; then suddenly every single activity related to hospitality reduced almost to nil.

Countries in full lockdown stopped hospitality and the freedom mobility value chain. Almost every flight was cancelled and a zero-tourism season – never seen before – became a reality. The nightmare started…

Despite all this well-known reality, governments have spent their scarce resources trying to address at least three priorities:

  1. To solve the health effects of the pandemic,
  2. To mitigate huge unemployment rates, another consequence of the lockdowns, and
  3. To compromise on both current and extraordinary expenditure; whilst income derived from taxes is also plunging, stressing the conditions of deficit severely.

The OECD has stressed the fact that governments must focus on getting the economy back to work, while acknowledging that fiscal equilibrium might not be the goal for 2020 -2022. Yet all jurisdictions are seeking innovative ways to obtain fresh fiscal income that will start the road towards the fiscal recovery.

Knowing this, the hospitality industry must prioritise transfer pricing and its impact in their taxable bases, when dealing mainly with cross border transactions. These cross border business relationships with related parties will become subject to scrutiny.

Thresholds vary from jurisdiction to jurisdiction and relevant documentation as well, yet most of the countries imposed the burden of proof on the taxpayer to document that those transactions with related parties are in accordance with the arm´s length principle.

On December 18th, 2020, the OECD issued a paper titled “Guidance on the Transfer Pricing Implications of the COVID-19 Pandemic.” This document stresses the severe impact of the pandemic and the consequences of it, using several business models to illustrate the impact on the normal circumstances of transfer pricing adjustments, to be considered by both the tax administrations and taxpayers as well.

“Accordingly, this guidance focuses on how the arm’s length principle and the OECD TPG apply to issues that may arise or be exacerbated in the context of the COVID-19 pandemic, rather than on developing specialised guidance beyond what is currently addressed in the OECD TPG. This guidance focuses on four priority issues: (i) comparability analysis; (ii) losses and the allocation of COVID-19 specific costs; (iii) government assistance programs; and (iv) advance pricing agreements (“APAs”); where it is recognised that the additional practical challenges posed by COVID-19 are most significant.”[1]

[1] OECD. Guidance on the transfer pricing implications of the COVID-19 pandemic. Dec 2020. Pg. 2.


Be aware that matters that are obvious today, might not be clear some years from now; when businesses in general may get back to their regular operations. You should have highly well documented the elements of current circumstances, mainly those issues about comparability analysis of your support documentation of related parties’ transactions, awaiting the audits by tax authorities.

(Read more about the OECD Guidelines and the impact of COVID-19 on transfer pricing in Thailand).

Undoubtfully, economic activity for hospitality businesses would not be comparable to the pre-existing conditions prior to COVID-19. It is going to take many years to recover and get back on track, if ever, to those pre-2019 levels.

The OECD’s recommendation is to create the appropriate documentation that shows the effects of the extraordinary expenses needed to be incurred as result of the pandemic, in an isolated manner. It would also be wise to create a separate profit and loss statement that illustrates the evidence of these effects. The need to isolate this is critical for the comparability analysis, mainly for the first quarter of 2020 and any periods of permanent or temporary reopening, so that the database analysis can be adjusted when doing the extraordinary adjustments that will be triggered by the COVID-19 effect.

It is also important to have clearly segregated information in the P&L, such as the received government support programs when applicable. Do not mix such income with regular income that will distort comparable numbers.

It is highly recommended to contact your team of transfer pricing experts to solve multiple issues regarding COVID – 19. Consider that there would be a high level of uncertainty surrounding tax inspections in the future. Our best advice is to fully document everything, to prepare for huge and potentially massive audits induced by the lack of fiscal resources.

At HLB we understand the hospitality industry and have vast experience in cross border transactions that could become a new nightmare soon. We will move from the pandemic to the endemical effects in taxation and in transfer pricing matters.

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