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.