Why the Financial Action Task Force does blacklist Thailand?

If you are following the actuality you may have heard that the Financial Action Task Force has fingered pointed Thailand as one of the 15 countries with strategic AML (anti money laundering /CFT (Combating financing terrorism) deficiencies that have not made sufficient progress in addressing the deficiencies.

Why then is Thailand deficient?

Thailand deficiencies come first from the fact that Thailand has a huge shadow economy.

A shadow economy can be defined as including all market-based legal production of goods and services that are deliberately concealed from public authorities (1) to avoid payment of income, value added or other taxes,(2) to avoid payment of social security contributions, (3) to avoid having to meet certain legal labor market standards, such as minimum wages, maximum working hours, safety standards, etc., and(4) to avoid complying with certain administrative procedures. Now a British accountant called Richard Murphy has based on data sourced from the World Bank, CIA World Factbook, the Heritage Foundation and World Health Organization and that covered the period from 1999 to 2007 published a report showing that Thailand had over the period a shadow economy representing 51% of its GDB and that the cost of the tax evasion resulting from the shadow economy over the period was 776,999 million THB.

Why is the share of Thai shadow economy so important?

The share of the shadow economy is important because the Thai government is not yet sufficiently equipped to control the whole economy. For example the Revenue Bureau of Thailand does still not have enough officers to seriously control the tax situation of all companies operating in Thailand. Bar owners for example can still make agreements with the Revenue Bureau as to what amount of VAT or corporate income tax they will paid per year. The company or individual owner of the bar will through his accountant makes an agreement with the tax department pursuant to which it will pay every month a certain amount of VAT and every year a certain amount of corporate income tax irrelevant of the actual turnover of the business.

Too many businesses are still run without proper business registrations and do not issue proper tax receipts. When doing the accounting of a company in Thailand you can count on at least 20% on expenses that you cannot claim as tax deductible expenses because the suppliers provide receipts that cannot be deemed tax receipts and cannot be used to claim expenses. In the bar businesses the ratio may increase up to 80 to 90%. Bars will purchase from supermarkets maybe 20% of the beverages they sold to have tax receipts that matches the official turnover. The rest will be purchased from beverage businesses that do not issue tax receipts. No records of the beverage purchases, no records of the beverage sales no taxes paid on most of your income.

Another bad point is an outdated foreign investment context.

Basically in Thailand foreigners are prohibited to exercise any service businesses under the form of 100% foreign owned. For example all entertainments related businesses must be exercised under the form of 51% Thai owned companies. Therefore many companies running those kind of businesses and in which foreign investors are involved are run by dummy corporation with dummy shareholders making it difficult to accounts where the profits goes.

While Thailand has a foreign exchange law which is quite elaborated and makes it difficult to transfer money overseas without generating a lot of paperwork’s it is actually quite easy to transfer money out of the country. For example, many Thais and foreigner will use foreign exchange companies to transfer or bring cash in or out of Thailand without traces. You just bring cash in the morning in Bangkok and will see your overseas bank account credited (less foreign exchange commissions and a small fee) in the evening. You can transfer money on a foreign account in the morning and go withdraw cash in THB or USD in the afternoon in Thailand.  Many other methods are available for those who want discreetly transfers money in and out of Thailand, no questions and no paperwork’s involved

Will Thai Authorities straighten things?

Thai Authorities dislike any news that created a bad image for Thailand. Therefore you may be certain that Thai authorities will takes very quickly measures to formally comply with the Financial Task Action Force requirements in order to remove Thailand very quickly from the grey listed countries list. While formally the objectives of the FTAF will have been accomplished and Thailand will be back in the fold of compliants countries the fact is that the issue will not have solved itself and that the shadow economy will still continue to generate.

Originally posted 2012-02-18 09:43:44. Republished by Blog Post Promoter