HTMS Taksin FFG-421, upgrade program fromphase 1 to phase 3 (image : TAF)
The government has ordered the armed forces to sign all weapons and equipment procurement contracts in Thailand to ensure proper taxes are paid.
Any military procurement deals with companies registered locally or abroad are now required to be signed in-country so that 7% value-added tax and a 1% withholding tax can be applied to the transaction, a navy source said.
In recent years, weapons deals were often signed abroad and tax payments were not factored into procurement budgets, making it difficult for the Revenue Department to collect tax from the deals, the source said.
The navy was the first branch of the armed forces to abide by the department's new regulation, the source said.
The navy now clearly separates value-added tax payments from the costs of weapons or equipment in its procurement contracts, the source said.
If a firm is locally registered, it is responsible for paying tax to the Revenue Department.
But the new tax regulation has put a big dent in the navy's budget, forcing it to downgrade the specifications of new weapons and equipment purchases.
On the purchase of two medium-sized frigates, which cost about 15 billion baht each, the navy had to pay taxes of more than 1 billion baht for each ship, the source said.
That left only around 28 billion baht left to buy the two ships.
The cabinet had earlier approved a navy proposal to buy the two frigates at a cost of around 30 billion baht.
Because of the 2-billion-baht shortfall, "the navy has had to reduce the specifications of the frigates, including downgrading the weapons and equipment to be fitted on the ships", the source said.
"But we must abide by the law and do the right thing, as the tax we pay will go to the state's coffers and be used in other state projects."
Navy chief Adm Surasak Rounroengrom said the navy had strictly abided by the new tax regulation, insisting that procurement procedures had been conducted in a transparent manner.
The navy was willing to be scrutinised to prevent any misunderstanding about its procurement schemes, he said.
During last month's censure debate, the opposition attacked Defence Minister Sukumpol Suwanatat for his role in a navy project to modernise combat systems on two of its frigates.
Sirichok Sopha, Democrat MP for Songkhla, attacked the minister over the navy contract awarded to Saab AB to upgrade combat systems on the HTMS Naresuan and HTMS Taksin.
The Democrat MP charged that ACM Sukumpol had altered the terms of reference for the scheme just 12 days after assuming the defence portfolio.
The navy later denied the allegations.