After the flood: Government Assistance

The severe flooding this year has had a widespread impact. Many people and businesses have suffered. In order to support victims and enable them to achieve a speedy recovery, there are a number of tax relief measures available, 

some of which provide relief to victims while others help the donors. Some are existing measures introduced as a result of past disasters while a few qualify as special relief created for the current floods.

First some key tax relief measures provided by the Revenue Department.

For victims:

Personal income tax (PIT) and corporate income tax (CIT) exemption on compensation received from the government.

- PIT and CIT exemption on cash or property received from donations (other than government) not exceeding the value of the damages incurred.

- PIT exemption on rent, professional income, income from contract work, whereby the contractor provides essential materials, and commercial income equal to the amount of damages the individual victim has registered with the authorities.

- CIT exemption on insurance compensation in excess of the net book value of the damaged assets.

- The tax filing period for all taxes for business operators in affected areas is extended to Dec 30.

For donors:

- Individuals can take deductions for cash donated through an intermediary agency, a public charity or a governmental agency. However the Revenue Code caps this deduction at 10% of the assessable income after all allowances and deductions.

- Corporations can take a deduction for cash or property donated through an intermediary agency, a public charity or a governmental agency capped at 2% of net profit.

Key tax relief measures provided by the Board of Investment:

- Import duty exemption on machinery to replace damaged machinery.

While these measures will provide a level of relief to both victims and donors, some are asking whether this much assistance is sufficient. The government has to weigh how much tax breaks it can realistically offer. To obtain a better perspective on this, let's take a look at the recent earthquake in Japan for guidance.

The Japanese government offered these measures:

PIT

- Extension of loss carry forward _ normally losses from a disaster can be treated as a tax deduction for the year and carried forward for three years. A special measure was introduced to extend the period of carry forward by two more years.

Extension of loss carry back _ normally PIT would be exempted/reduced in the year in which the disaster occurred. This measure allowed the reduction for the prior year (the earthquake occurred four days before the 2010 PIT filing deadline).

Increase of donation cap _ normally donations can be treated as a deduction from PIT with a cap of 40% of income. This increased the cap to 80% to encourage donations.

CIT

Extension of loss carry back _ normally losses can be carried back for only one year (a corporation can claim a tax refund by using the loss to offset against the profit of the prior year). This measure allowed the loss to be carried back for two years.

Withholding tax (WHT) refund _ normally WHT would not be refunded at the half-year filing. This measure allowed victims to request a WHT refund to help with their cash flow.

Special depreciation _ a special depreciation rate can be applied to assets that were purchased to replace those damaged during the disaster.

These measures were only aimed at lessening the victims' burden. Japan is now considering additional tax incentives for the recovery period (medium and long-term) for the benefit of both individuals and corporations.

Looking at the Japanese experience, it is clear that Thailand should consider the provision of further tax relief in addition to the normal measures. 

This is not to say that Thailand should, for example, raise the donation cap to 80% for individual donors as Japan did. 

Nevertheless, Thailand should consider raising the cap as well as allowing taxpayers to claim a refund of WHT prior to filing the CIT return at year-end as this flood is one of the greatest disasters to hit Thailand in many years.

Thailand should consider this an opportunity: by trading short-term revenue loss for longer-term goodwill, it can emerge stronger in the region to compete for future foreign investments.