A new notification from the National Anti-Corruption Commission (NACC) is expected to have a significant impact on companies that do business with the Thai government. On August 11, 2011, the NACC issued the Notification re: Rules and Procedures Concerning the Preparation and Disclosure of Revenue and Expenses Accounts of Projects which Individuals or Juristic Entities are Contractual Parties with Government Agencies (Notification). Pursuant to the Notification, effective January 1, 2012, private sector entities entering into procurement contracts with government agencies will be required to prepare and electronically submit revenue and expense accounts to the Revenue Department every year, together with their Corporate Income Tax Return (for juristic entities) or Personal Income Tax Return (for individuals).
The Notification will significantly impact entities in the private sector that enter into government procurement contracts, including individuals, Thai companies, and foreign companies with a local presence. The definition of “government agencies” is quite broad and includes majority state-owned enterprises such as Krung Thai Bank and PTT.
Importantly, the threshold for reporting is quite low—all government procurement contracts that have a value of THB 500,000 or more will be subject to the disclosure requirement. Businesses and individuals will also be required to submit one revenue and expense account for each contract and to keep supporting documents for at least five years. (However, if there is an investigation on incorrect disclosure or corrupt activities, supporting documents must be kept until the investigation is completed.) The Notification further requires that government agencies must set a condition that businesses and individuals entering into procurement contracts must receive and make payment via a current account, except for payments not exceeding THB 30,000, which can be made in cash.
Government contracts executed before January 1, 2012, will not be subject to this new disclosure requirement. However, if any material amendments are made to such contracts on or after January 1, 2012, they will also be subject to the disclosure requirement under the Notification.
If full payment under a contract is completed within a single accounting period (for juristic entities) or tax year (for individuals), the revenue and expense accounts shall be filed for that accounting period or tax year. If full payment under a contract is not completed within a single accounting period or tax year (for individuals), the revenue and expense accounts consisting of revenue and expenses arising in each accounting period shall be filed for that accounting period. The reporting requirement will commence from the date that the contracts are executed and will continue until the completion of obligations under the contract—meaning that businesses and individuals will still be required to report their revenue and expense accounts of the project during the warranty period.
Although failure to comply with the new disclosure requirement does not entail criminal penalties, the sanction imposed under the Notification is commercially severe: violators will be disqualified from entering into new procurement contracts with government agencies. In addition, failure to comply with the reporting requirement or incorrect reporting could result in scrutiny by the NACC, Revenue Department, and other relevant government authorities.
Aimed at curbing corruption, the revenue and expense reporting form (Form Bor Chor.1) requires businesses and individuals that enter into government procurement contracts to provide detailed information of each procurement contract, including the cost of sales or expenses, manufacturing costs, and selling and administrative expenses (which cover certain items such as personnel expenses, utilities expenses, and directors’ remuneration not specifically incurred under any particular contract). At this stage, it is still unclear whether and how these expenses will have to be allocated to each government procurement contract for the purpose of reporting revenue and expense accounts.
The new reporting requirement will place a substantial burden upon the private sector because it requires a separate detailed report for each contract, and the threshold of contract value subject to the reporting requirement is set at only THB 500,000. (The NACC has explained that this threshold was set in accordance with the existing requirement that government agencies are currently required to report contracts having a value of THB 500,000 or more to the Comptroller General’s Department.)
Given that a business may enter into hundreds or thousands of contracts with government agencies each year, one can see the considerable impact that this new requirement will have on the private sector. The new measure will increase operating costs for preparing revenue and expense accounts, and businesses and individuals will be obliged to take such additional expenses into account when bidding for or entering into procurement contracts. On the other hand, those not wishing to be involved with complicated reporting may refrain from bidding or entering into government procurement contracts, which could effectively limit competition.
The new requirement could also divert regulators’ attention from larger cases of corruption, as the NACC and Revenue Department will be flooded with information due to the relatively low value of contract threshold. Thus, it remains to be seen whether this new measure will be effective in addressing major corruption in Thailand.