A very taxing question

Local tax agencies insisting that current fine rates be lower than bank lending rates have led to increased tax debts. Is that the case?

The fine levied on delayed payments is currently 0.05 per cent per day, tantamount to 1.5 per cent per month or 18 per cent per year. Meanwhile, bank lending rates are around 20 per cent, per year. Some tax agencies assumed such low fines was not strong enough to force disobedient debtors to pay off tax.

At some point of time the fine rate was actually lower than bank lending rates. However, banks’ average lending rates in the past four years was below 18 per cent, per year.

Will tax payment delays continue if stronger sanctions are not applied?

In fact, tax arrears rate per total budget revenue has fallen remarkably in some recent years. It stood at 9.5 per cent in 2008, sliding to 7.7 per cent in 2009, 7.3 per cent in 2010 and 6.2 per cent in 2011.

The State Bank’s credit tightening policies means firms’ access to bank loans will not become easier. Is it likely that firms not operating in priority areas will be persistent debtors?

Tax policies aim to ensure stability. The government is committed to containing inflation to a single digit this year. The State Bank is consistent in pulling down bank interest rates. Hence, it is reasonable to not hike the fine rate.

Besides, the current 0.05 per cent per day fine level is not low since parallel to this fine rate firms incur a penalty if they wrongly declare their tax amounts.  In that case they will incur a 10 per cent fine rate on surplus amount. They are also obliged to pay double or triple tax arrear amount if they strive to evade tax payment such as leaving offices or changing business locations.

How will the MoF support firms apart from not hiking the fine rate?

There are multiple reasons why firms cannot pay tax arrears, some are unexpected reasons.
To help firms overcome this hard time, the MoF proposes not to take coercive measures towards tax debtors who are allowed by tax authorities to pay tax arrears within 12 months since the date coercive measures due to occur. However, in this case tax debtors must have guarantee from credit institutions and they are also obliged to pay 0.05 per cent per day fine rate.

It seems few credit organisations would provide guarantees in that case?

There are clear regulations tax payers are subject to extended payment in case of unexpected reasons such as natural calamities or fires. Here we mention payment delays not due to unexpected reasons, so we need stricter regulations.

I believe credit organisations will be willing to provide guarantee to enable firms to handle their tax obligations since in this case firms only face temporary financial problems which hampered them from paying tax on time.