The cash tax rate in FY18 increased from 9.1% in the prior year to 27.5%. – Generally, cash tax paid in any particular year may differ from the tax accrued on profits for the year. The average cash tax rate as calculated above substantiated our statement in FY17 that 50% of income tax charged on income derived in FY17 has already been paid in FY18. In addition, the tax paid significantly increased due to the acquisitions of the Grand Royal Group in Myanmar and Sabeco in Vietnam which represented by 25% of the total tax paid in FY18.
A large majority of the Group’s income is derived from Thailand which is subject to the CIT at 20%. However, the reported tax rate in FY18 is 18% which is slightly lower. From the annual report, the reconciliations of the ETR provide reasons as follows:
Effect of different tax rates
in foreign jurisdictions mainly represents tax effect from income of THB 112m derived by The Grand Royal Group (“GRG”), Myanmar subsidiary which are subject to the higher tax rate at 25% and income of THB 94m derived by ThaiBev under IHQ tax regime since FY16 resulting in certain types of income is entitled to a tax exemption or tax reduction for 15 accounting periods from the date of the approval by the Thai Revenue Department.
It is worth noting that Thailand joined OECD's Inclusive Framework on Base Erosion and Profit Shifting (BEPS) in 2017 and the IHQ scheme was featured as a harmful tax practice and should be suspended. In response to this, Thailand government has announced the International Business Center (“IBC”) regime that is in line with the OECD’s Inclusive Framework which will replace the IHQ.
As ThaiBev aims to achieve sustainable and competitive taxation, and act at all the time with relevant international standard, ThaiBev is ready to convert the IHQ to the IBC in June 2019. Under IBC regime, the preferential income rates of between 3% and 8% will be applied depending upon its annual expenditure to be spent in Thailand in each respective tax year.
“Income not subject to tax”
mainly arises from income derived by Hong Kong subsidiaries. Hong Kong adopted territorial rule where income derived offshore will not be taxable in Hong Kong.
In addition, dividend income will be exempt from Thai tax due to tax legislation in Thailand provides a participation exemption rule for the Thai parent company on the dividend received from its subsidiaries.
ThaiBev’s subsidiary, has been granted tax privileges by the Board of Investment relating to the projects of electricity generation from biogas at distilleries and production of beverage. The privileges granted includes the tax exemption for the income derived from the promoted businesses for 8 years from the date on which income is first derived from the promoted businesses. Similarly to Myanmar operation, 2 subsidiaries has been granted the tax exemption for 5 years from Myanmar Investment Commission which has been already expired in December 2018.
“Expenses not deductible for tax purposes”
mainly represents non-deductible expense amounting to THB 904m incurred by subsidiaries located in Hong Kong by which its non-taxable income was derived i.e. dividend and gains from disposal resulting in expenses relating to such non-taxable income should not be claimed.
There was a negative figure reconciled against the above non-deductible, arising from a number of tax incentives as follows:
“Recognition of previously unrecognized tax losses”
- The training fee charged by Thai Beverage Training Co., Ltd. can be a tax deductible for 200% based on the Thai government policy to promote the development of employee skills.
- The 50% and 100% additional tax deduction from the acquisition of new capital expenditure during 2016-2017.
- The public donations to educational and sport institutions which can be a tax deductible for 200%.
mainly represents the reversal of losses incurred in the year prior to THB 80m deferred tax assets.