The Thaksin regime was the first administration to use tax as a tool to subdue its political opponents. Now this tactic is having a boomerang effect.

"We now have solid grounds to tax the two people," Deputy Prime Minister and Finance Minister MR Pridiyathorn Devakula said on Tuesday.

He was referring to the U-turn stance of the Revenue Department, which is planning to send tax bills to Panthongtae and Pinthongta Shinawatra, the children of former prime minister Thaksin Shinawatra.

The two made capital gains on the sale of their 329 million Shin Corp stocks to Temasek Holdings of Singapore, without paying tax.

This case has become a hot political issue because Pridiyathorn appears to be trying to protect Sirote Swasdipanich, the director-general of the Revenue Department, and Suparut Kawatkul, the permanent secretary of the Finance Ministry.

Sirote and Suparut failed to act on Panthongtae and Pinthongta when they bought 329 million shares from Ample Rich, incorporated in the British Virgin Islands, for Bt1 apiece before selling them via the Stock Exchange of Thailand (SET) to Temasek for Bt49.25 each the following day.

This transaction should have been taxed at a rate of Bt5.8 billion, but the Revenue Department turned a blind eye. But this time Sirote emerged to point out there were grounds to tax the two children of the Shinawatra family.

As a bureaucrat, it is always difficult to adjust to different political environments. Pridiyathorn has no intention of sacking Sirote or Suparat because he needs them to assist him in fiscal policy planning.

Sirote has reported to Pridiyathorn about all the tax questions relating to the Shin Corp transactions. Neither he nor Suparut handled the Shin Corp deal. Benja Luicharoen, an adviser to the Revenue Department, acted on Sirote's behalf when she issued a letter on September 21, 2005 assuring Pranee Vechapreukpitak, a confidant of Khunying Pojaman Shinawatra, that the Shin Corp transactions would not be subject to any tax at all. Pranee was asking Benja on behalf of Panthongtae and Pinthongta.

This piece of evidence showed that all the preparations had been made in advance to avoid paying tax for the Shin Corp deal.

Both Sirote and Suparut were understood to have come under political pressure not to raise any objections against the pre-determined opinion that the Shin Corp deal should not be taxed. "They did not dare go against then finance minister Dr Thanong Bidaya," said a well-informed source.

But Sirote and Suparut erred badly by appearing at a news conference with the head of the Securities Exchange of Thailand in early February this year. They assured the public that the Shin Corp transactions were transparent and were not subject to any taxation at all.

The legal team of the Shinawatra family then also argued that Panthongtae and Pinthongta were not subject to any taxation because both were owners and shareholders of Ample Rich, set up by Thaksin in the tax-free islands for a very ambiguous purpose before he entered politics in 2001. Transacting 329 million shares from Ample Rich to Panthongtae and Pinthongta amounted to simply a shift of assets from the left pocket to the right pocket. Besides, Ample Rich was incorporated in a tax haven, which did not have any taxation treaty with Thailand.

When Panthongtae and Pinthongta sold the stocks to Temasek via the SET, they did not have to pay tax either because capital gains of individuals in the stock market were tax-exempt.

Were Ample Rich to sell the Shin Corp stocks directly to Temasek, it would have had to pay the capital gains at the top rate of 30 per cent.

Now the Finance Ministry has taken a new approach to the Shin Corp transactions. It views Panthongtae and Pinthongta as having attempted to avoid paying tax by having Ample Rich sell the stocks to them first at Bt1 a share - at below the market price - before selling the stocks to Temasek on the following day for huge profits.

If Panthongtae and Pinthongta were to hold on to the Shin Corp stocks after buying them from Ample Rich without further transactions, they would not be taxed. But the motive in this particular transaction was very clear - they wanted to avoid paying tax.

However, Noppadol Patama, the lawyer of the Shinawatra family, plans to fight the case in court. Noppadol had Benja's letter in his hand to verify to the court that the official line was in favour of the two kids of the Shinawatra family. But the authorities would argue that Benja was simply issuing her opinion upon request about the tax issue. Her opinion did not necessarily reflect the Revenue Department's stance as a whole.

Thanong Khanthong

The Nation