TAX PLANNING AND MANAGEMENT

Tax
1. A charge on sum of money levied on a person or property for the benefit of th
e state
2. It a payment to the government
3.It a kind or charge imposed by the state upon the citizen
4.Profit =revenue expenses
Types of taxes
Direct tax indirect ta
x
Income tax sales/cst /vat
Wealth tax excise
Corporate tax custom
Dividend decision tax service tax
FEATURES:
Levied on Income and Assets.
Tax Payer is tax Bearer.
Burden of tax cannot be shifted.
Slabs are applicable.
Tax planning avenues area available.
Regulated under Income Tax, Companies Act, Partnership act.
It is collected and monitored by CBDT
It is levied upon goods and services.
Tax payer is tax Bearer.
Burden of tax can be shifted.
There is no system of slabs
No such revenues available.
Regulated under Sales Tax and Excise Duty.
It is collected by Board of excise and custom.
'DIRECT TAX
A direct tax is paid directly by an individual or organization to an imposing en
tity. A taxpayer, for example, pays direct taxes to the government for different
purposes, including real property tax, personal property tax, income tax or tax
es on assets. Direct taxes are different from indirect taxes, where the tax is l
evied on one entity, such as a seller, and paid by another, such as a sales tax
paid by the buyer in a retail setting.
THE HISTORY OF DIRECT TAXES
Distinction between direct taxes and indirect taxes came about with the passing
of the 16th Amendment in 1913. Prior to the 16th Amendment, tax law in the Unite
d States was written so that any direct taxes were required to be directly appor
tioned to the population. For example, a state with 70% of the population in rel
ation to another state would only be required to pay direct taxes equal to 70% o
f the larger state.This ancient verbiage made it so many direct taxes, such as p
ersonal income tax, could not be imposed by the federal government due to apport
ionment requirements. However, the passing of the 16th Amendment changed the tax
code and allowed for the levying of numerous direct and indirect taxes.
AN EXAMPLE OF DIRECT TAXES
Corporate taxes are a good example of direct taxes. If, for example a manufactur
ing company operates with $2 million in revenue, $1 million in cost of goods sol
d (COGS) and $200,000 in total operating costs, its earnings before interest, ta
xes, depreciation, and amortization would be $400,000. If the company had no deb
t, depreciation or amortization, and had a corporate tax rate of 35%, its direct
tax would be $240,000, derived as: ($400,000 * 0.35) = $240,000.Additionally, a
person's income tax is an example of a direct tax. If a person makes $100,000 i
n a year and owes $40,000 in taxes, the $40,000 would be a direct tax.
TAX
It is arrangement of one s financial affairs so that legal provisions wont violate
.
It carried out the full enjoyment of Tax Rebates, Tax Exemptions, tax Deductions
.
It is within the four corners of LAW and regarded as fully legitimate.
Needs and objective of tax planning
Tax planning is done for the reduction of Tax Burden.
To avoid any sort of litigation.
Tax planning generally done to avoid any type of raid and penalty.
To get the benefit of concessions and exemptions given under law.
The tax planning avenues provide a financial cushionor backup for the use of con
tingencies in future.
Tax planning done for the preparation and maintenance of systematic records.
To discharge the responsibility of a good citizen.
Perquisites of TAX Planning
To have full usage of tax planning.
To evaluate fully tax planning avenues.
To consider all direct and indirect taxes.
It should be done as guided by Tax Laws.
TAX MANAGEMENT
Tax management was a term that was used by companies a few years ago. The tax
director made his management aware of nasty surprises in his department or, pref
erably, dealt with anything before they developed that way. Other than that, wha
t has now developed into a new practice area of its own, sometimes known as tax
risk management, was just another part of a tax director s role, without any more
significance than, for example, compliance or structuring. Regulation has change
d all that. Tax authorities are more and more aggressive around the world and ha
ving been doing their best to make sure that business managers can have no excus
es for ignorance about their tax function.
Other regulators, for example accounting standards organisations, with rules suc
h as the Sarbanes-Oxley Act and FIN 48, have ensured that the relationship betwe
en tax has taken on an importance for the rest of the business that it may not h
ave had. It is in this context that International Tax Reviews co-publishes the s
econd edition of its Tax Management in Companies guide with PricewaterhouseCoope
rs. The guide is the 44th in the Tax Reference Library series, which has also co
vered other topics such as transfer pricing, indirect taxes and outsourcing. The
y are designed to give in-house tax counsel the most cutting edge advice for pla
nning their corporation s tax strategy and structuring transactions in these field
s.
It includes maintenance of records in prescribed format.
It includes getting audited the records, filing returns and pay taxes. Etc.
It is a regular feature of business enterprises and a form of tax planning.
Employees use Central Board of Direct Taxes.
Employers use Tax deduction and collection Account No.

MAIN AIMS OF TAXMANAGEMENT

Compliance with legal formalities.
Saving from penalties and prosecution.
Taking advantages of various tax incentives and deductions.
Review of department orders
AREAS OF TAXMANAGEMENT
Deduction of tax at source-: It can be done with respect of income from salaries
, winning from lottery, horse race, etc.
Employer seek for TDCAN and employee for Pan Cards
TDS should be deposited in government treasury.
Employer should furnish to the employee a certificate regarding TDS i.e. Form 16
.
Employer should furnish quarterly and annual returns regarding TDS
2 .Payment of tax-:
1.Advance payment of Tax.
2.Tax on Self Assessment
3.Payment on Demand.
2. Audit of accounts
1.If business income exceeds 40 Lakh.
2.If individual income exceeds 10 Lakh
3.Fulfillment of conditions to claim deductions.
4.Furnishing return of Income.
5.Documentation and maintenance of records.
6.Review of Orders
TAX AVOIDANCE
An art of dodging out i.e. actually breaking law.
Method of reducing tax incidence by finding out loopholes in law.
A device which technically satisfies requirement of law but not in legal accorda
nce.
It includes attempt to prevent or reduce tax liability.
TYPES
Agricultural income.
Section 80-IB- Tax Holiday for setup of business in Backward areas.
Section 80G- Donations are tax exempted.
Meaning of tax avoidance
Tax evasion is not the same as tax avoidance. Tax avoidance is the exploitation
by the taxpayer of legally permissible alternative tax rates or methods of asses
sing taxable property or income, in order to avoid or reduce tax liability. Expl
oitation loopholes in the taxation laws in order to escape from taxation or redu
ce tax liability is also deemed as tax avoidance. Tax avoidance is more politely
called tax minimization . So tax avoidance is the part of tax planning.
Example:
A resident of Thailand earning income from sources outside Thailand does not bri
ng his foreign paid income into Thailand in the same calendar year of earning in
come. He must not pay income tax. (The Revenue Department s ruling No.0802/696 1 M
ay 1987)
Meaning of tax evasion
Tax planning is not the same as tax evasion. Tax evasion is the application by t
he taxpayer of illegal or fraudulent means to defeat or lessen the payment of a
tax. Tax evasion is also known as tax dodging . It is punishable by law.
Examples:
Deliberate failure to report taxable income or property; deliberate reduction of
income that has been received;1 transfer pricing practices.
TAX EVASION
To reduce tax liability when accounts are interpreted then it is Tax Evasion.
It is not only illegal but also immoral and antinational.
Under tax laws, tax evaders are penalized by heavy duty.
MEANS OF TAX EVASION
Falsification of Accounts.
Inflation of expenses.
Cautious violation of rules.
Excessive payment of salary.
Non-disclose of capital gain
Distinction between tax evasion and tax avoidance
Tax evasion should be applied to the escape from taxation accomplished by breaki
ng the letter of the tax law deliberate omission to report a taxable item, for e
xample.Tax avoidance, on the other hand, covers escape accomplished by legal pro
cedures or loopholes in the taxation law which may be contrary to the intent of
the sponsors of the tax law but nevertheless does not violate the letter of the
law. Whereas the tax evader breaks the law, the tax avoider sidesteps it.
The classic distinction in nowadays between the two terms was given by a U.S. Se
nater as follows : A man approaches a river which can be crossed by two bridges,
one a toll bridge and the other a free bridge. If he passes on the toll bridge a
nd fails to pay the toll, this is tax evasion. If however, he crosses by way of
the free bridge, this is tax avoidance.
In either case, the gain of the tax evader or tax avoider, is the government s los
s.
In the second mentioned example, if such a Thai resident bringing his income fro
m any source outside Thailand into the country in the same calendar year of earn
ing income does not deliberately declare the income in the tax return, his perfo
rmance is tax evasion. On the other hand if he escapes from taxation by bringing
such income in the another year, his performance is tax avoidance.
Assessment year
The period of time in which the tax liability is assessed and the payment of Ta
x is made upon the income earned in previous year is known as Assessment
Previous year
It is the year in which income is earned.
Financial year
It is the year in which new tax laws are prepared in the Finance Act are impleme
nted.
ASSESSEE
A person whose tax liability is assessed according to the provision of law.
TYPES OF ASSESSEE
Sole proprietor
Hindu undivided Family.
Partnership Firm
Company
SOLE PROPRIETOR
MERITS
Pay tax as per slab defined by Finance Act.
Deductions that can be claimed by individual.
Sec 80 CCC-: Contribution to Pension Fund.
Sec 80 D-: Medical health insurance for family members.
Sec 80 DD-: Expenditure on Medical Treatment for disable
Dependant.
Sec 80 E-: Interest paid on loan of higher studies.
Sec 80 G-: Donation to approve funds.
Sec 80 GGA-: Payments for scientific research.
Sec 80-: Income of a disable person.
Sec 80JJA-: Profit from business collecting and processing biodegradable wastes
DEMERITS
Unlimited liability.
Don t get deduction against payment of salaries.
Cannot raise additional capital by way of shares anddebentures issue.
No money received as interest on capital.
May have to liquidate assets for discharging liabilityof companies.

HINDU UNDIVIDEDFAMILY
TAX LIABILITY
Similar to individual or sole proprietor.
Allowed as many deductions as allowed to SoleProprietor
Salary of KARTA is fully tax deductible.
Interest on capital is not allowed
PARTNERSHIP FIRM
Firm registered under Partnership Act.
Limited to 20 person only.
If limit of person exceed then firm adopt company form of business organization.
TAX LIABILITY
Pay tax @30% + 10% surcharge + 3% Education cess.
Tax deducted under Sec 80G, 80GGA and 80JJA.
Allowed deduction similar to individuals and HUF.
Interest o capital is allowed as deduction.
Probability of raising additional capital can be solved byadmitting a new partne
r.
Remuneration paid is allowed as deduction
DEMEITS
Tax liability is similar to company form of organization but cannot raise capita
l by issue of share.
Liability of partners is limited to the extent capital contributed.
If Provident Fund wont comply with 184Section of Income Tax it is treated as AOP
(Association of Persons).
It comes to closure if lunacy of partners is found.
COMPANY
As per Indian s Company s Act 1956.
An artificial person or entity.
TAX LIABILITY
Pay tax @30% + 10% surcharge + 3% Educationcess.
Maximum amount of tax as no tax slab is available.
To pay FBT and DDT and Wealth Tax.
Indirect taxes like custom duty, excise duty, servicetax, VAT.
Deduction on interest paid on debentures andborrowings.
Salary paid is fully deductible.
Depreciation on assets is fully deductible
THE DIFFERENCE BETWEEN TAX PLANNING AND TAX MANAGEMENT .
Tax Planning Tax Management
(i) The Objective of Tax Planning is to minimize the tax liability The obje
ctive of Tax Management is to comply with the provisions of Income Tax Law and i
ts allied rules.
(ii) Tax Planning also includes Tax Management Tax Management deals with filing
of Return in time, getting the accounts audited, deducting tax at source etc.
(iii) Tax Planning relates to future. Tax Management relates to Past ,. Presen
t, Future.
Past Assessment Proceedings, Appeals, Revisions etc.
Present Filing of Return, payment of advance tax etc.
Future To take corrective action
(iv) Tax Planning helps in minimizing Tax Liability in Short-Term and in Long T
erm. Tax Management helps in avoiding payment of interest, penalty, prosecut
ion etc.
(v) Tax Planning is optional. Tax Management is essential for every assessee.

How to do tax planning?

Doing tax planning, I am of the opinion that you should know the six following s
uggestions;
1. We should know what income, property or transaction is exempted from taxatio
n. The tax exemption may be granted by acts, royal decrees, ministerial regulati
ons. The double taxation agreement between Thailand and 40 countries also grant
tax exemption.
2. Among sole proprietorship, non-registered partnership or non juristic body, r
egistered ordinary partnership, limited partnership, private company, public com
pany, joint venture an consortium, we should know which business organization pa
ys tax less, It will assist you make a decision to select a proper business orga
nization in doing business.
3. We should know the details of each kind of taxes, For example, we should know
which entities must pay corporate income tax (taxpayer), what income is taxed (
Tax Base) and its rate (Tax Rate), how to pay and settle tax disputes (Tax payme
nt and Appeal).
4. We should know the tax burden of each kind of contracts (e.g,sale contract, h
ire of work contract, turnkey contract, technical assistance agreement, licensin
g agreement, joint venture agreement, consortium contract etc.) and which party
of thecontract must pay tax and deduct tax. Moreover, you should know what kind
of contracts does not have tax liability, exempted from taxation or pay less tax
.
5. We should know tax accounting because paying corporate income tax and value a
dded tax must use tax accounting. Taxpayers cannot use financial accounting in p
aying such taxes. Tax accounting is an accounting which is provided by tax law,
e.g, the Revenue Code. It differs from financial accounting. So net profit, loss
in profit and loss account created by financial accounting cannot be used in pa
ying corporate income tax. It must be adjusted correctly to tax accounting provi
ded in section 65 of the Revenue Code.
6. We should also have to keep books of accounts and record of transactions. You
have to be punished and pay more tax if you do not have and keep them, e.g, A t
ax authority shall have the power to assess tax on gross receipts of your compan
y at the rate of 5 percent by virtue of Section 71(1) of the Revenue Code althou
gh your company account appears loss.
Case Study
A foreign international airline company registered in the United States of Ameri
ca wants to do international airline business in Thailand. Its director consults
you as a tax consultant, whether his company should register a new company or o
pen a new branch in Thailand. What is your advice?
I am of the opinion that you should advise him to open a new branch in Thailand
because, it the airline registers a new company in Thailand, it must pay income
tax (at the rate of 30 percent of its each year s net profit). But if it opens a n
ew branch in Thailand, it is exempted from income tax by the Double Taxation Agr
eement between Thailand and the United States of America Case . Bell Telephone M
anufacturing Company (Bell) organized in Belgium has to make an agreement for sa
le, installation and construction in Metropolitan Telephone Plan Project with th
e Telephone Organization of Thailand (TOT).
The project is finished in one year and the remuneration is two billions baht. B
ell consults you how it can reduce its tax payment. What is your advice? I am of
the opinion that you should advise Bell to made two contracts with TOT. One is
a sale contract and the other is an installation and construction contract. Beca
use if Bell does not separate the contract, it will be deemed as a hire of work
contract totally under Section 587 of the Civil and Commercial Code and it must
pay full income tax of its two billion baht remuneration.
Although it is organized in Belgium having the double Taxation Agreement with Th
ailand, its two billion baht income is not exempted from taxation because the in
stallation and construction project are performed in Thailand for more than 6 mo
nths. It is deemed as having a permanent establishment in Thailand and will not
be granted tax exemption according to the Double Taxation Agreement between Thai
land and Belgium. But if it separates the contract to be a 1.5 Billion baht sale
contract for equipments used in installation and construction and a 0.5 billion
baht installation and construction contract.
They sign the sale contract before the hire of work contract. Its 1.5 billion ba
ht income is exempted from taxation according to the Double Taxation Agreement b
etween Thailand and Belgium because in this case it will not be deemed as having
a permanent establishment in Thailand. (The term permanent establishment is defin
ed in the tax treaty to mean a fixed place of business through which the busines
s of an enterprise is wholly or partly carried on. It includes a place of manage
ment, a branch, an office, a factory, a workshop, a warehouse, a mine, guarry, o
il or gas well or other place of extraction of natural resources.
However, a building site or construction or assembly 7 project would be deemed a
s a permanent establishment in Thailand only if the Belgium person has such acti
vity in Thailand for more than 6 months.) Bell must only pay tax from its 0.5 bi
llion income because it is the income from installation and construction project
conducting in Thailand for more than 6 months. It can reduce more tax payment.
This is a genuine tax case between Bell Telephone Manufacturing Company and the
Revenue Department. The Supreme Court passed the judgement No. 124/1997 and the
winner is Bell. If you need more details, you may read International Tax Planning
written by the writer and staff, distributed by T. Training Centre.
Conclusion
In doing business every trader must take into consideration on taxes and do tax
planning., otherwise he or she may pay more tax and be bankrupt. A trader should
consult tax experts before doing business or making contracts. Many traders do
business without consulting tax experts. They rely on only technical personals t
o negotiate a contract without consulting tax experts and thus fail to make prov
ision for Thai tax. The result is that they end the business or project with tax
losses. Thai tax could go up to as high as 15 20 percent on gross receipt if du
e care is not exercised in satisfying the liabilities. Penalty and surcharge wil
l only aggravate the problem.