The introduction of anti-tax evasion legislation in Thailand: an institutional theoretical perspective

ABSTRACT

On 26 April 2016, Thailand introduced new tax evasion legislation which was enacted by Parliament in April 2017. The Act amended previous anti-money laundering legislation, transferred prosecution of serious tax evasion cases from the Revenue Department to an anti-money laundering unit and permitted the seizure of an accused’s assets once criminal proceedings had been initiated. Drawing on institutional theory, our study examines why this legislation was introduced. It focusses on the formal institutions and legitimacy. Specifically, it reports on 35 interviews with a range of stakeholders to ascertain their views about the reasons behind this legal change. The results suggest that external and internal legitimacy concerns acted as catalysts for the change. These results have practical implications for those investigating the issue of tax evasion and policy implications for those examining whether legislation will impact the incidence of tax evasion within a country.

KEYWORDS:

• Tax evasion
• institutional theory
• legitimacy
• formal institutions
• Thailand

Acknowledgements

We thank the the Editor and the anonymous reviewers for their careful reading of our manuscript and their many insightful comments and suggestions.

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

1 The tax gap is the difference between the amount of revenue actually collected for a tax in respect of a fiscal year and the amount that would have been collected with perfect compliance (OECD, 2018).

2 Medina and Schneider (2018, p. 4) define the shadow economy as “all economic activities which are hidden from official authorities for monetary, regulatory, and institutional reasons”.

3 Prior to this, tax evasion was dealt with under the Revenue Code of Thailand, B.E.2481 (A.D.1938) without mentioning tax evasion.

4 For tax evasion to be a serious offence, (i) the tax offence must relate to tax evasion of ten million Baht or more in a tax year, or a fraudulent tax claim of two million Baht or more in a tax year; (ii) the offender, either on their own or with others, has attempted to conceal assessable income for the purpose of committing income tax evasion or tax fraud; and (iii) any properties which relate to this offence are concealed or hidden by the offender for the purpose of preventing the tracing and seizure of these assets.

5 For instance, Sikka (2014) reported that, at that time, the UK tax authority was scrutinising over 40,000 tax avoidance schemes involving in excess of £10bn of tax revenue to decide whether or not they should be legally challenged on the grounds that were unlawful and constituted tax evasion.

6 This approach may have been adopted because the AMLO identified tax evasion as one of the five major crimes which contributed to a large percentage of all criminal assets in Thailand (AMLO, 2018). In addition, the switch of the ALMO from the Ministry of Justice to the direct supervision of the Prime Minister may have influenced the decision. Such issues are explored in the current paper.

7 For a comprehensive review of the literature which suggests that some of the predictions of the Allingham and Sandmo (1972) are not supported by empirical evidence, see Freire-Serén and Panadés (2013).

8 This paper recognises the government as the formal institution because it involves key individuals who have substantial and unrivalled power to shape tax policy (Grimm, 2006). Furthermore, these formal institutions exert influence through rules and regulations, normative prescriptions and social expectations (Scott, 2001).

9 Mulligan and Oats (2016) refer to “in-house” as tax executives from 15 companies from the technology sector in the Silicon Valley. However, this study refers to “in-house” as officials in the Revenue Department, the Department of Special Investigation, the Anti-Money Laundering Office and the Fiscal Policy Office of the Thai government.

10 Analysis of statutory tax rates of other ASEAN countries, the UK and US reveals that the Philippines, Thailand and Vietnam currently have the top marginal tax rate for personal income at 35% among those ASEAN countries with Personal Income Tax (KPMG, 2019).

11 The quotes in Thai were read by two other Thai nationals fluent in the local language and translations were agreed before being used in this paper.

12 After finalising the transcripts, the views of the respondent in the transcripts were read several times and then summarised. For example, the view that “five interviewees suggested that enactment of this law resulted from a high-profile case of VAT fraud in 2015 which called the legitimacy of the tax system into question” were summarised to the first-order concept which is “A high-profile fraud case in 2015 involving Revenue Department staff”.

13 The main ideas or themes raised from the first-order concepts (i.e., improving the Revenue Department’s efficiency and effectiveness, increasing trust in the tax collection system, as well as being seen to act on tax evasion) were grouped into the second-order themes which is “Government influence”.

14 Zhang et al. (2021) highlight how underpayment of corporate VAT is often ignored by the tax literature noting “that traditional studies “that limit their focus to income tax may have underestimated the magnitude of firms” tax avoidance [and evasion]”. The VAT-fraud case in Thailand which was thought to be a factor behind the legislation would tend to support this view.