Friday, August 1, 2008

Pojaman Case: "Gift Due to Moral Obligation"

Here is a nice summary by The Nation:

The court interpreted the meaning of "gift due to moral obligation", under which the recipient can be exempt from personal income tax payment. Deposed prime minister Thaksin Shinawatra's wife Pojaman claimed she did not pay tax on the transfer of shares to her adopted brother Bhanapot Damapong because it was "a gift under a moral obligation".

However, the court said the claim was not valid and found Pojaman guilty of intentionally avoiding tax payment of Bt546 million for the transfer of 4.5 million Shinawatra Computer and Communications shares worth Bt738 million. Found guilty on the same charges were Bhanapot and Pojaman's secretary Kanjanapa Honghern.

The court sentenced Pojaman and Bhanapot to a total of three years in jail each - two years for the charges relating to the conspiracy to evade tax and one year for giving falsified statements. Kanjanapa faces two years in jail.

The court said the three defendants had committed serious crimes and filed false statements with the government agencies in order to avoid paying taxes. They intended not to pay taxes despite the fact that they were wealthy people.

The court ruled that the prosecution's evidence was solid and indisputable. The three suspects were found guilty of fraud or collaboration to evade taxes. In addition, Pojaman and Bhanapot were found guilty of filing false claims and presenting false evidence to the authorities with the intention to avoid paying taxes.

The court also reprimanded Pojaman in particular, saying that with her high economic, social and political status - especially her status as the wife of the country's then leader - she should have acted as a good example to society.

The Criminal Court ruled out every defence argument in the tax evasion case as insubstantial in rebutting the prosecution evidence.

The court said the prosecution had proven beyond reasonable doubt that the defendants committed a conspiracy to evade tax. The ruling declared that Pojaman and Bhanapot made the share transfer in the stock market in order to avoid tax liabilities even though there was no real transaction.

Bhanapot admitted Pojaman gave shares to him and the court found this was not a family gift. The ruling addressed a key legal issue - whether the three defendants intentionally gave falsified statements to the authorities in order to avoid tax liabilities.

While I think that bringing the court case to trial was politically motivated since many politicos and businessmen escape paying taxes( this was a case of selective enforcement based on destroying political enemies), there is no doubt in my mind that Potjaman and company tried to get away with not paying taxes. Their lame defense was exactly that, lame. The argument that Pojaman had to support her brother as a moral obligation is ludicrous, especially since he was already tremendously wealthy and he just gave her back the cash at a later time.

The definition of "gift offered for moral obligation" in the Revenue Code's section 40 (10) was the theme of this high-profile tax-evasion lawsuit. Defence lawyers tried to argue that Khunying Pojaman in 1997, gave 4.5 million shares of Shinawatra Computer and Communication (later renamed Shin Corp) worth Bt738 million to her brother Bhanapot on the basis of moral obligation. The tax payment and fine in the case was calculated to be Bt546 million.

Under section 40 (10), the recipient of a gift of this nature is not required to pay personal income tax on it.

The Court yesterday ruled that the law does not give a definition of the phrase "gift offered for moral obligation". The court therefore referred to Thai dictionary BE 2542, which explains that the giver wants to help or support the recipient and the giver also has a moral duty to do so.

The court said that interpretation of the Revenue Code has to be very strict and that those who receive such gifts have to deserve them.

The court ruled that the first defendant, Bhanapot, did not deserve such a gift because he already had wealth, being chairman of Shinawatra Computer, earned Bt23.5 million in 1997 and owned 2.3 million shares in the company and 23 million shares in SC Asset, its subsidiary.

Although Bhanapot was not as rich as his relative Pojaman, he was not in need of a gift by moral obligation, said the court.

Thailand is in a quandary because of this case, however. Will laws start being enforced across the board or will they be only enforced to get politicians or enemies of those who control the courts?

I know next to nothing of the law regarding this, but I have to wonder if the Shinawatras can make an argument on appeal about selective enforcement of the law.

Also, another card that Shinawatras might play is blackmail. They were in power for a long time and probably know more than anybody dirt that can be used to get back at those who they feel betrayed them.

I shall call this the nuclear option.

The nuclear option would be if it looks like that Shinawatras will face jail time and/or loss of their fortune, they will have nothing to lose, so they will expose every person who either conspired with them or who they know have committed crimes, in business and politics. They might even expose the Royal Family for any dodgy dealings, if they got the dirt.

The Shinawatras also are still in a position to influence the government. What if they used their influence to pressure the OAG to start digging up crimes from the last ten years on all the political big wigs and businessmen?

I think the nuclear option is a real possibility. Thaksin doesn't seem like the sort who would put all his eggs in one basket and risk his entire life and future on what the court decides.

If the Shinawatras have the entire elite establishment by the balls, they might get off the hook through some behind the scenes wheeling and dealing.

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