Taxman: B20,000 interest exemption still in place

(Bangkok Post file photo)

The Revenue Department has clarified its new regulation on interest income tax to dispel public misunderstanding that earners will have to pay the tax from the first baht.

At present, interest income from fixed deposits is subject to 15% withholding tax but the first 20,000 baht of the income is exempted.

The department issued an announcement on Friday on the new criteria for the interest income tax exemption. To amend some of the conditions, the announcement "abolishes" the existing rules, which caused public misunderstanding that the 20,000-baht exemption would also be scrapped.

The department clarified on Friday that the exemption remains in place. The only change is that depositors will from now on have to give consent to their banks to submit their account data to the department so that it can determine who should be taxed and by how much.

Earlier, it was the responsibility of depositors to tell banks once their interest income from all accounts reached 20,000 baht so the banks could deduct withholding tax on the interest payments. 

With the 20,000-baht exemption, some people have tried to circumvent the rule by opening accounts with several banks and maintaining the deposit in each account at around 4 million baht to keep the interest income below 20,000 baht so they don’t have to be taxed.

Since banks have no knowledge of the interest income of an individual at other banks, the strategy worked, prompting the Revenue Department to plug the loophole.

It did so by issuing the announcement, requiring all banks to send it information of all depositors so it can determine by itself who should pay the interest income tax.

However, the department is worried about privacy so it ordered all depositors to give consent for their banks to send such data to the department. Those who do not agree will lose the exemption.

The measure creates a problem as most people do not have accounts exceeding 4 million baht, yet they have to give the approval to their banks.

Former finance minister Korn Chatikavanij on Friday proposed a way to solve the problem.

Writing on Facebook, he said the Revenue Department should coordinate with the Bank of Thailand, which has access to bank information. However, both are governed by different laws and cannot share their data.

“Instead of pushing the burden to depositors, the department should make banks responsible for advising those who are liable to pay the tax," Mr Korn wrote.

"More importantly, the department should impose strict punishment on banks which help large customers evade the tax by suggesting they close an account when the interest income approches 20,000 baht and open a new one when the tax year ends."

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