Thai govt has no plan to hike tax now, but economist says it’s possible in years to come

BANGKOK (The Nation/ANN) - Thai govt says it will not raise VAT.

The government has no plan to hike the value-added tax (VAT) rate for now, but an economist has suggested raising the tax when economic growth expands to 4 per cent. 

Deputy Prime Minister Somkid Jatusripitak said yesterday the proposal to increase VAT was an old one and the public should not worry about it.

He was referring to a proposal by the National Legislative Assembly on Thursday to increase the VAT rate to 8 per cent from 7 per cent.
“The tax hike must come at the right time and in the right economic conditions,” Somkid said. The Finance Ministry would look into it, he added.

The NLA reasoned that raising VAT by 1 per cent would bring an additional Bt60 billion to Bt70 billion in revenue, as current state revenue cannot match the rising annual expenditure, which is causing a widening budget deficit.

Nipon Paopongsakorn, a veteran economist at Thailand Development Research Institute, suggested the government increase the VAT rate to 10 per cent when gross domestic product (GDP) expands to 4 per cent. It may not be possible this year as economic growth is expected to be about 3.5 per cent but it could happen in later years, he said. 

Meanwhile, permanent secretary of Finance Somchai Sujjapongse also said a hike in the VAT rate would hurt the economy at a time when economic growth is accelerating. GDP growth in the first quarter was 3.3 per cent, he said. He said the Finance Ministry was upgrading tax collection under the national e-payment project, and this could help tax officials collect an additional Bt100 billion annually.

The Finance Ministry will propose to Cabinet that it continues with the current VAT rate at 7 per cent for another fiscal year, which ends in September, he said.

The VAT rate was 10 per cent before being cut to 7 per cent in 1998. But successive governments have been wary of restoring the higher rate due to fear of a backlash from the public and its impact on the economy.

Under the national e-payment project, the Finance Ministry encourages small businesses or vendors to install Electronic Data Capture devices (EDC) to record financial transactions. The system will support the efforts by the Revenue Department to collect more tax as officials have more information about financial transactions.

The ministry hopes 500,000 EDCs will be installed nationwide under the e-payment system, which is aimed mainly at reducing cash payments. E-payments will also lower costs for both the Bank of Thailand and commercial banks to manage payment systems, as they need not to carry lots of cash and coins. The EDC device, however, has not been popular among vendors. 

The Revenue Department is also putting greater effort into collecting more taxes from tourism industries, such as hotels, restaurants and other services. 

In response to the Finance Ministry’s opposition to a hike in VAT, Siriphol Yodmaungcharoen, vice chairman of the NLA’s committee on economy, finance and fiscal affairs, said yesterday that the NLA wants the government to invest more in education and improve public health services by using extra revenue from a VAT hike. 

“Lawmakers propose what we think is in the public interest,” he said.
Siriphol said VAT rates in other Asean countries ranged from 7 to 10 per cent, which showed the NLA proposal was reasonable.

The NLA had also proposed other tax reforms to increase state revenue, he said, so the government could choose to implement what could be done. 

Siriphol said that for the past few years the government missed its tax collection targets due to the impact of free-trade agreements, as the government had to lower tariff rates. Raising the VAT rate would make up for the decline in revenue from import taxes. 

He noted that budget deficits from 2013 to 2016 were a cause for concern. For example, government revenue in the 2013 fiscal year was Bt2.16 trillion but expenditure was Bt2.4 trillion, while revenue in fiscal 2016 was Bt2.4tn against expenditure of Bt2.8tn. 

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