CHAPTER 5 CONCLUSION AND RECOMMENDATIONS

Transcription

1 134 CHAPTER 5 CONCLUSION AND RECOMMENDATIONS The majority of the enterprises all over the world are SMEs that are regarded as the economic dynamism of the countries. Despite many advantages, SMEs incur lots of extrinsic and intrinsic adversities, especially small capital and short of liquidity in the start-up phase which inflame difficulties such as poor market competiveness, lack of skilled workers and technologies, inefficient management, difficult to access and analyze the information. On one side of the coins, the fixed assets with an economic useful life over one accounting period are subjected to be depreciated over such periods in pursuant to reflecting the actual value of the properties and the expenses to generate the income in such accounting period. On the other side of the coins, depreciation for tax purpose incentive is one of the prominent tax incentives to stimulate the economy whereby the investment in capital assets spills over the positive externalities through SMEs. Thus, depreciation for tax purpose incentive is the prime instrument to advocate the enterprise to purchase necessary equipments in order to generate the assessable income which is the fundamental part of the enterprise. Nevertheless, there is the adversity that the definition of SMEs in Thailand, which is the entrance of the implementation of preferential tax regime, is irrelevant to the economic context of the country and lacks of the qualitative parameter as anti-avoidance rules to prevent larger enterprises to abuse the status of SMEs and illegitimately enjoy such tax benefits. Furthermore, the initial depreciation allowance in Thailand is very limited on certain qualified assets and the percentage of the depreciation deduction on the costs basis is relatively low comparing to other countries, equally as the standard depreciation which leads to the complexity for small business to keep record and does not help the enterprise to reduce the compliance cost, the uncertain treatment of low-value assets and the fuzziness of the treatment concerning business related expense or blackhole expenditure. These may not be sufficiently attractive enough to be an effective instrument to stimulate the economy comparing to the other target groups i.e. the United States and Australia as the following table.

2 135 Table 13: Summary of Depreciation for Tax Purpose for SMEs in the United States, Australia and Thailand The United States Australia Thailand Definition of SMEs - Qualitative parameter - Quantitative parameter Various depending on each industry, generally fewer than 500 employees and less than $7 million in annual receipts Independency of the enterprise Less than A$2million aggregated turnover Independency of the enterprise Not more than 200 employees and 200 million Baht fixed assets (excluding land) None Initial Depreciation Allowance 3 steps 2 steps 2 steps - Qualified Assets - Depreciation rate Eligible properties for Modified Accelerated Cost Recovery System (MACRS) with a recovery period of 20 years or less, Water utility property, Off-theshelf computer software, qualified leasehold property 100% Any tangible depreciating assets under the simplified depreciating rules Subdivision 328- D 50% Any other assets Section 4 of the Royal Decree No. 145,machinery and equipment, computer hardware and software, factory building 100% for Any other assets 40% for machinery and

3 136 - Loss Carry Forward Section 179 does not allow to create tax loss for small business but bonus depreciation allows Allowed to be part of the loss of profits equipment and computer hardware and software 25% for factory building Net operating loss is allowed to be carried forward for 5 years Standard Depreciation Allowance Each asset is subjected to be depreciated MARCS depreciation Pooling System : the asset will be allocated into the appropriate pools and treated as single depreciating asset Each asset is subjected to be depreciated Section 4 of The Royal Decree No.145 Low-value Assets Can be write off by 179 already Asset cost less than A$ 1,000 can be immediately write-off No provision but Private Ruling of Revenue Department : low-value assets are subjected to be pooled together and depreciated over the time The Treatment of Blackhole Expenditure Depreciated over 5 years from the No provision but Private Ruling of

4 137 year the expenditure was incurred Revenue Department Comparing the definition of SMEs and the depreciation for tax purpose as investment incentive among The United State, Australia and Thailand, this study recommends the Thailand should amend the law in pursuant to solving the adversities and stimulating SMEs in Thailand as follows; 1. Proposed Definition of SMEs in Thailand There are 2 parameters to justify the definition of SMEs i.e. quantitative parameter, mainly the number of employee, the amount of fixed assets and the amount of turnover and the qualitative parameter, mainly the independence of enterprise. From criteria analysis, each quantitative parameter incurs it own disadvantages. Many countries utilize different criteria to provide the definitions of SMEs depending on the nature, characteristic and scope of the small business. Such definitions play significant role on the ground that they help excel the effectiveness of specific measures to advocate small business sector. Nevertheless, of all the countries, only United States and Australia have incorporated the qualitative parameter into the definition of small business. However, Definition of small business in United State is not particularly for tax purpose. Considering the depreciation for tax purpose, Section 179 of the Internal Revenue Code indirectly stipulates the definition of Small business by the amount of purchase of the capital assets.on the contrary to Australia which has successfully established the single definition of Small Business Entity to enjoy preferential tax concessions and to reduce the compliance cost, Australia has apparently adopted the independency of the enterprise as a qualitative parameter and anti-avoidance provision to stop larger business cleaving their activities to abusive access small business concessions. In Thailand, the definition of SMEs is various based on the authorized organizations and the purpose of use including diverse definition of SMEs within tax aspect. For the depreciation for tax purpose, the definition of SMEs in Thailand consists of 2 quantitative parameters by utilizing employment-base definition altogether with fixed assets-base definition. Nevertheless, it is apparently that the definition of SMEs in Thailand does not take into account of qualitative parameter and the current definition of SMEs in Thailand, i.e. the amount of fix asset incorporating with the number of employee, is less appropriate for granting tax incentives. Although each criteria to justify the definition of SMEs i.e. the number of employee, the amount of fixed assets and the amount of annual turnover has it own

5 138 disadvantages, the definition of SMEs by turnover which can access to the volume of revenue the company is considerably the most appropriate criteria to prevent the enterprise to go around the definition of SMEs. Thus, Thailand should amend the definition of SMEs by utilizing the turnover-base definition in lieu of the combination of labor aspect and the amount of fixed assets. Furthermore, it is indispensable that the definition of SMEs in Thailand should include the quantitative parameter i.e. the independency of the enterprise by adopting and applying Australian s aggregation rules. Nevertheless, it should be taken into account, that, in Thailand, such aggregation rules need to count in the partnership as the affiliate and the benefits derived from taxpayer joining in a joint venture should be included. 2. Accelerated Depreciation For the development of SMEs through initial depreciation allowance, comparing to The United States and Australia, Australia affords in 2 steps, temporary investment allowance and simplified depreciation rules. This implementation is similar to Thailand where accommodates in 2 steps, initial depreciation allowance and standard depreciation under The Royal Decree No. 145, whereas, The United States law provides through 3 steps, firstly, Section 179 depreciation deduction in conjunction with the additional Act which allows the enterprise to immediately writeoff the capital cost purchased and placed in service in the prescribed tax year. Secondly, the special depreciation allowance allows the enterprise to further immediate write-off 100% of the adjusted value of the certain qualified properties which is stimulated by the government, and, lastly, the standard MARCS depreciation still apply to the remaining cost of assets. In this regard, the extents of allowable assets and depreciation rates for SMEs in Thailand may not be sufficiently attractive to function as investment incentive. The government may alternatively and flexibly enact depreciation for tax purpose provision on more categories of assets and expand the amount of the initial deduction allowance the enterprise can write-off in the Royal Decree depending on the economic circumstances by adopting concept of the United States which is regarded as the most attractive initial depreciation deduction for tax purpose. This measure is suggested to be the short term plan to temporarily stimulate the economy or fix the clusters to develop the competitive advantages of some specific industries, while the qualified assets for the supporting specific industries need further research. 3. Introducing Pooling System For the Standard Depreciation Allowance, Thailand is similar to the United States that each assets will be depreciated separately. Whereas, different properties with same tax depreciation rate will be treated as if they were single property in Australia.

6 139 In pursuant to reducing the compliance cost and the burden of keeping record incurred by SMEs, this study suggests, that, for the standard depreciation rules on capital assets particularly for SMEs, Thailand should adopt pooling systems of Australia which allocates the capital assets to the appropriate pools and treats as single asset instead of calculating the depreciation deduction of each asset separately. However, the estimate useful life of the asset in Thailand needs to be revised to be relevant to the normal use of assets in business s operation. 4. Treatment of Low-Value Asset For the treatment of low-value assets, Low-value assets in The United States can be immediately write-off by virtue of Section 179 while, in Australia, assets cost less than A$1000 can be immediately write-off the whole depreciating value. Nevertheless, Thai tax law does not stipulate any treatment of low-value assets and Private Ruling of the Revenue Department prescribes the cost basis of the low-value assets is subjected to be pooled together but depreciated over the time. Some enterprises disregard such Ruling by following the accounting principle and write-off the low-cost asset in various amount which lacks of certainty in practice on the ground that such Ruling is not the law. Thus, Thailand should adopt the concept of Australian law by clearly prescribing cap in the treatment of the low value assets and solving the problem of certainty. 5. Treatment of Blackhole Expenditure In Australia, business related expense that neither fall within the category of the immediately deductible revenue expenditure nor give rise to depreciable assets, such as, business establishment cost, the cost for defending against takeover of business can be depreciated over 5 years from the year the expenditure incurred. In Thailand, there is no provision concerning the blackhole expenditure. By virtue of Private Ruling of the Revenue Department, such expense was treated as the revenue expenditure in one case, whereas, neither of the business related expense in rest two cases can be regarded as the revenue expenditure nor capital expenditure. Nonetheless, all the cases are not in consonant with an accounting concept and Letter of the Revenue Department is not the law. In order to provide the certainty to the business related expense or blackhole expenditure, Thai law should fix the uncertain practice concerning this issue by adopting the notion of Australian treatment of the blackhole expenditure to be depreciated over the certain time periods, inter alia, 5 years after such expense is incurred.