Key takeaways
A year with a strong set of accounts can be a year with no cash to pay CIT. The surcharge is 1.5% per month, but the heavier consequences are asset seizure and attachment, loan covenant breaches, and disrupted unit transfers. The safeguard is to set cash aside from the first unit transferred.
Introduction
The CIT trap does not come from making a loss. It comes from revenue recognition timing that does not match cash timing. The company closes its books with a profit and a large tax liability, but when the PND 50 filing falls due there is no cash, because the transfer proceeds have already been spent.
Why a strong year-end result is where the problem begins
Revenue from transfers is concentrated in the year when many units are transferred, while the cash from those transfers is usually spent immediately on:
- Repaying the construction loan under the bank's terms
- Construction costs for the next phase and common-area works
- Commission, transfer costs and selling expenses
- Capital returns or interim dividends
Executives therefore often find that the profit is in the financial statements, but the cash is not in the bank account.
Timeline when CIT cannot be paid
Hypothetical example: tax outstanding from PND 50 of THB 100 million, and a remaining project loan of THB 800 million
PND 50 filing deadline
Case A: return filed but tax not paid
The filing obligation is met, but the tax remains outstanding and a surcharge of 1.5% per month or part of a month applies under Section 27. It is not compounded and does not exceed the amount of the tax. You should negotiate with the Revenue Department before enforced collection begins.
Case B: return not filed
Statutory fines apply, and on an audit or assessment a penalty of up to 2 times the tax may be imposed, together with the surcharge. Officials have the power to audit retrospectively within the statutory framework, so this is always the worse option.
Step 1: accumulated surcharge
THB 100 million × 1.5% × 6 months = THB 9 million. The total at the end of month 6 is THB 109 million.
Step 2: seizure and attachment of assets
Outstanding tax debt allows the Revenue Department to exercise its legal powers to seize or attach assets, which may include bank deposits and the right to receive payments from customers. Once an order to seize or attach land or condominium units is issued, registration of transfers may be suspended. The company then loses the means of raising cash to solve the problem itself. The timing depends on the facts of each case.
Step 3: Event of Default
Many loan agreements contain terms covering unpaid tax or asset seizure. If these are triggered, the bank may issue a Notice of Default with a cure period as set out in the agreement. You need to read the wording of the agreement actually in force.
Step 4: acceleration and enforcement of security
Once the loan is called in full, the bank may enforce the mortgage and put the project up for auction.
Impact on customers who have already bought units
- When assets are attached, registration of transfers may not be possible.
- When the bank enforces its security, customers who have not yet taken transfer risk not receiving the unit they contracted for.
- In bankruptcy or business rehabilitation proceedings, unsecured customers are usually paid after secured creditors and creditors with priority rights.
The actual rights depend on the contract, the protective mechanisms and the case. Buyers should consult a lawyer. Managing CIT is therefore also a responsibility to customers.
Estimated liability in the worst case
| Item (THB million) | Return filed | Return not filed |
|---|---|---|
| Tax outstanding | 100 | 100 |
| 12-month surcharge | 18 | 18 |
| Maximum penalty used in the example (2 times) | 0 | 200 |
| Total tax liability for this year | 118 | 318 |
| Accumulated unpaid CIT for the following year | 54 | 54 |
| Total tax liability to be managed | 172 | 372 |
| Loan called in (an existing debt) | 800 | 800 |
An initial tax bill of THB 100 million can bring a THB 800 million loan due at the same time. The loan is not new debt, so this figure shows the shock to liquidity, not an additional loss of the full amount.
Possible ways out
1. Request instalment payments from the Revenue Department
The Revenue Department's operating manual states that taxpayers in arrears may request instalments within the approval authority of each office: for example, a branch revenue office may approve up to 12 instalments without security, and the area level up to 24 instalments, with security worth no less than the outstanding tax. However, tax under PND 51, PP 30, PP 36 and certain types of withholding tax falls outside the normal criteria, and a default may forfeit the right to pay by instalments. Check with the supervising office first.
2. Bridge loan to pay the tax
A short-term loan of 3-6 months secured against future transfer proceeds. It suits projects with clear transfer schedules, and requires the consent of the existing lenders.
3. Accelerate additional unit transfers
This works only for units that are ready, and must be done before any seizure or attachment order is issued.
4. Raise equity
This creates no additional debt, but it takes time and depends on the shareholders' readiness.
Lessons for executives
- Set aside CIT every time a unit is transferred, based on an explainable effective tax rate
- Keep the tax reserve account separate from the operating account
- Prepare a monthly cash flow forecast at least 18 months ahead
- Review the timing of transfers and the tax structure before closing the books each year
Closing the books with strong results but no cash plan to support them can become the start of a crisis for the whole project. Prevention costs far less than a cure after the event.