Why pay 7% VAT and what do you get in return

[Jonathan Fairfield]

 

BANGKOK (NNT) - Valued Added Tax, or VAT, is a familiar concept among the Thai people but is brought up for debate on an almost annual basis, often becoming a political issue. What are the origins of VAT What is the VAT rate in developed nations What is point of VAT The Public Relations Department now presents a simple understanding of VAT.

 

#GettingToKnowVAT 7%

 

Value Added Tax is a tax that is collected whenever consumption takes place; it is collected by the government from vendors, indirectly taxing citizens as the VAT rate is usually added to the price of a product or service. The tax is paid to the Revenue Department to be added to the national budget and is used on various expenditures. VAT is clearly indicated in any tax invoice where it has been charged.

 

VAT is calculated by the equation Price of Product/Service x 7%. For example, if NNT company sells a lamp worth 1,070 Baht, 1,000 Baht is the capital cost and 70 Baht is the VAT. NNT company must deliver the collected tax to the Revenue Department on a monthly basis.

 

Thailand’s VAT rate was actually 10 percent when it was introduced in 1992, but a Royal Decree in 1997 reduced it to 7 percent with reconsideration taking place every two years. This was done for the sake of the public during the economic crisis at the time, commonly known as the “Tom Yum Kung” financial crisis. Twenty years later the 7 percent rate still stands, instead of the original 10 percent.

 

A major issue in Thailand is tax collection not meeting targets, which impedes expenditure on national development. This is exacerbated by the general public’s apathy and a resistance towards paying tax, which is actually a civic duty. While citizens may want good welfare and national infrastructure matching that of developed countries, avoidance of taxes has made this reality difficult to actualize.

 

How does VAT help the public

 

Tax payments not only support the administration of the country but come with a number of other benefits in the form of welfare, which enhances the quality of life from birth to death. Simply put, taxes paid by citizens ultimately better their lives through expenditure directed by the government. VAT contributes to the following expenditures (in accordance with the Annual Budget Act)

 

1. Education

 

2. Senior Citizen Benefits

 

3. National Security

 

4. Transport

 

5. Public Health (including the Gold Card)

 

6. Hospitals

 

7. Police

 

8. Others

 

Amid the COVID-19 crisis, which has impacted public life and the economy in Thailand and across the globe, maintaining fiscal stability has become crucial. Over the past year, government revenue dropped 6.8 percent on-year, with the government only collecting 2.39 trillion baht in fiscal 2020 (as of 31st December, 2020) as a direct result of lower tax payments.

 

Despite the drop in revenue, it is not possible for the government to reduce the efficiency of its services, especially in these trying times. Meanwhile, Deputy Prime Minister and Minister of Energy Supattanapong Punmeechaow, has given his word that the VAT rate will not be raised in this two year period.

 

 

Minister of Finance Arkom Termpitayapaisit, said today that the VAT rate being used until September this year will be maintained for another year, making known the promise will be put to Cabinet. He gave his word the rate would not be adjusted until the entire tax system is overhauled, with relevant agencies currently studying the matter. He admitted however, that after the year period has finished, the situation will have to be reassessed.

 

What is the VAT rate of developed nations

 

Advanced economies maintain different VAT rates, but it is their comprehensive collection that leads to improved public life and services. Developed nations have the following VAT rates:

 

Japan VAT 8%

 

South Korea VAT 10%

 

China VAT 17%

 

Australia VAT 10%

 

New Zealand VAT 12.5%

 

Norway VAT 25%

 

United Kingdom VAT 20%

 

Germany VAT 19%

 

Austria VAT 20%

 

Denmark VAT 25%

 

Finland VAT 23%

 

France VAT 19%

 

Italy VAT 20%

 

Canada VAT 7 – 25%

 

Global Average 15.5%

 

The United States of America does not collect VAT, but instead has Sales Tax, which changes rate from state to state and is imposed directly on buyers and excludes added State Tax.

 

Overall, developed nations impose high VAT rates, which is done so that their governments can effectively provide public services. On top of the high VAT rates, these countries also have high rates of income and revenue tax across all their citizens, usually 40 percent or higher for more than 80 percent of their population.

 

VAT rates in ASEAN:

 

In ASEAN, Thailand has the lowest VAT rate alongside Singapore.

 

Revenue Department data shows that in 2019, of the 68.86 million citizens of Thailand, only 11 million filed a tax return, or 16.18 percent, with only 5 million people paying taxes as required out of 30 million working adults. Revenue that year was only 0.3 trillion Baht with income tax the third most paid tax after VAT and corporate tax.

 

Often, when politicians run on platforms promising lower VAT rates, they are simply posturing for votes, as such a reduction would have a considerable impact in light of the country’s low annual revenue. A simple cut to VAT could impact both public welfare and government operations. Hearing such a claim should give citizens pause, as they could be supporting a process that would ultimately be to their detriment.

 

-- © Copyright NNT 2021-04-04

 

- Whatever you're going through, the Samaritans are here for you

- Follow Thaivisa on LINE for breaking COVID-19 updates

[SmartyMarty]

Please get the facts correct. NZ is 15%, not 12.5%.

[ThailandRyan]

How much of the VAT collected goes back into the economy to keep things moving and not into the pockets of the upper crust government officials.  Just give me 7% of one months take and I would be in 7th heaven.

[Peterw42]

Thailand's official VAT rate is actually 10%, the 7% is a perpetual lower rate that gets extended each year.

Not sure the point of comparing Thailand's VAT with other countries as there are many other factors, ie: other tax rates like personal income, corporate etc that can be different. Other countries have higher VAT tax rates but provide more services, free university, welfare, subsidized housing etc.

Its not comparing apples with apples.

 

[tracker1]

Who suspects this is a warming to an increase in VAT any time soon !

[Pattaya Spotter]

I can't remember who said it but the quote went something like "Taxes give you civilization [not the rule of the jungle]."

[Peterw42]

 

7 minutes ago, Pattaya Spotter said:

I can't remember who said it but the quote went something like "Taxes give you civilization [not the rule of the jungle]."

I think it was the tax office of most countries said it

Edited April 4, 2021 by Peterw42

[Peterw42]

17 minutes ago, tracker1 said:

Who suspects this is a warming to an increase in VAT any time soon !

I agree, otherwise why even mention it, or point out how low it is compared to others.

[edwinchester]

17 minutes ago, tracker1 said:

Who suspects this is a warming to an increase in VAT any time soon !

Yeah, reads just like a Govt Infomercial rather than a piece of journalism.

[overherebc]

Why don't they admit it really stands for  Very Annoying Tax.

????

[ThailandRyan]

A friend of mine built out the shell of his condo and spent over 2 million baht doing it.  He also lives in the Philippines and the US. He tried to claim the VAT refund at the airport upon leaving after buying the aircons, stove, refrigerator and washer and dryer.  They wanted to see the units in his luggage.

[ExpatOilWorker]

1 minute ago, ThailandRyan said:

A friend of mine built out the shell of his condo and spent over 2 million baht doing it.  He also lives in the Philippines and the US. He tried to claim the VAT refund at the airport upon leaving after buying the aircons, stove, refrigerator and washer and dryer.  They wanted to see the units in his luggage.

 

Sure, you need to take the item out of Thailand to claim VAT refund, but that is easily done on laptops, watch and even the wife's wedding ring.

Did it ever return, well.....maybe.

[Peterw42]

2 minutes ago, ThailandRyan said:

A friend of mine built out the shell of his condo and spent over 2 million baht doing it.  He also lives in the Philippines and the US. He tried to claim the VAT refund at the airport upon leaving after buying the aircons, stove, refrigerator and washer and dryer.  They wanted to see the units in his luggage.

The VAT refund for "tourists" is only on goods you purchase in Thailand and take back home. I think it also doesn't apply once you have any sort of long stay visa

[Pattaya Spotter]

4 hours ago, Peterw42 said:

 

I think it was the tax office of most countries said it

Oliver Wendell Holmes, former Justice of the United States Supreme Court, said, "Taxes are what we pay for a civilized society." As quoted by the US Treasury Department website you're pretty much right ????????????

 

https://www.treasury.gov/resource-center/faqs/taxes/pages/taxes-society.aspx

Edited April 4, 2021 by Pattaya Spotter

[ThailandRyan]

7 minutes ago, Pattaya Spotter said:

Oliver Wendell Holmes, former Justice of the United States Supreme Court, said, "Taxes are what we pay for a civilized society."

Thailand is civilized then? By the way they are treating the student protestors versus those already convicted like Suthep, I would think the civilized folks thought they were above the rest and thus entitled to the money the lesser than folks kick upwards.  Sort of like the collections from the serfs by the folks that lived in castles and lorded over them in the early days of Europe.  

Edited April 4, 2021 by ThailandRyan

[whatsupdoc]

4 hours ago, Peterw42 said:

The VAT refund for "tourists" is only on goods you purchase in Thailand and take back home. I think it also doesn't apply once you have any sort of long stay visa

I did get tourist VAT refunds while having a multiple entry non-O visa.

[khunPer]

5 hours ago, Peterw42 said:

Thailand's official VAT rate is actually 10%, the 7% is a perpetual lower rate that gets extended each year.

Not sure the point of comparing Thailand's VAT with other countries as there are many other factors, ie: other tax rates like personal income, corporate etc that can be different. Other countries have higher VAT tax rates but provide more services, free university, welfare, subsidized housing etc.

Its not comparing apples with apples.

You are in principle right, however Denmark – and Norway – top the list with 25 percent v.a.t., and Denmark also has a high income taxation up to 57 percent, and high taxes on a lot of other stuff, for example between 85 percent and 150 percent tax on a private car (plus import duty and v.a.t.), but still the people complains about overloaded healthcare system with often long waiting times, and lack of government support in numerous areas, including schools and education, and generally too low welfare support etc. etc.

 

Perhaps paying such a high price – indirectly by being number one in the World for high taxation – makes the population expect more?

 

However, in comparison the Thai government hospitals I've visited actually seemed more efficient than the Danish hospitals – and that is comparing apple with apple – so perhaps the level of taxation is not that important...????

[bangsaenguy]

5 hours ago, tracker1 said:

Who suspects this is a warming to an increase in VAT any time soon !

Maybe an increase to pay for vaccine they have not ordered

[Peterw42]

8 minutes ago, whatsupdoc said:

I did get tourist VAT refunds while having a multiple entry non-O visa.

Thats a multiple short stay visa, 90 days max then you leave

[new2here]

I personally don’t mind the VAT per se ... and I think it is just one part of a larger, balanced, total taxation picture... 

 

By that I mean it would be unwise (and statistically regressive) IF the nations total taxation come exclusively or near exclusively from VAR/Sales or some other form of end-user consumption tax.. Rather the use of a VAT-like tax, PLUS all the other various forms of taxation- be that personal income, corporate income, investment earnings/gains, import taxes, land/property ownership, etc 

 

Sure, there will ALWAYS be arguments over the mix and rates of the various taxes... and how the government allocates these revenues into their national budget etc.  

 

I also agree that simply comparing thailand’s current VAT rate to other countries is somewhat misleading as you don’t take into account what OTHER taxes are collected and at what rate.

 

[KarenBravo]

It's a consumption tax. The more you consume, the more you pay. Sounds fair to me.

[josephbloggs]

10 hours ago, ThailandRyan said:

A friend of mine built out the shell of his condo and spent over 2 million baht doing it.  He also lives in the Philippines and the US. He tried to claim the VAT refund at the airport upon leaving after buying the aircons, stove, refrigerator and washer and dryer.  They wanted to see the units in his luggage.

Yes, and exactly right.  If I order an item in the UK for export I would not pay 20% VAT.  Doesn't matter where I live if I buy an item in the UK for use in the UK it is subject to UK VAT.  Just the same as Thailand.

Why would your friend be so stupid as to expect to get a VAT refund at the airport for items that are in use in Thailand and that remain in Thailand?

[connda]

You get told with a straight-face by Thais and their farang supporters that you don't actually pay taxes which is why you'll never be allowed permanent residency if you are a man married to a Thai woman.  (Different rules for foreign women married to Thai men who neither need to earn income or pay taxes but are extended a path to citizenship after three years of marriage, one year if they have a child). 
"But you don't pay income tax!", says the Thais who don't pay income tax.
Neither do most of you.  Most of you pay VAT just like I do.
I really get tired of hearing that.

Edited April 4, 2021 by connda

[ThailandRyan]

1 hour ago, josephbloggs said:

Yes, and exactly right.  If I order an item in the UK for export I would not pay 20% VAT.  Doesn't matter where I live if I buy an item in the UK for use in the UK it is subject to UK VAT.  Just the same as Thailand.

Why would your friend be so stupid as to expect to get a VAT refund at the airport for items that are in use in Thailand and that remain in Thailand?

He was just seeing if he could make it work out for him. That's all.  We don't stay wealthy if we don't try a few side hustles now and then and try and recoup what we can now do we.  

[josephbloggs]

18 minutes ago, ThailandRyan said:

He was just seeing if he could make it work out for him. That's all.  We don't stay wealthy if we don't try a few side hustles now and then and try and recoup what we can now do we.  

I read your post as you thinking the Thais were wrong to question him about it.  If you agree he was wrong but was just trying it on, fair enough.

[Puccini]

There is a tax on the income you earn (income tax) and a tax on the the part of the earned income you spend (VAT)

 

People who have an annual net income of THB 150,000 or less are exempt from paying income tax. The VAT serves, among other things, to get some tax revenue also from these low income earners.

 

P.S. Perhaps the tax-exempt income threshold has been increase since I last saw the figure of THB 150,000

[rickudon]

The majority of Thais do not pay income tax, either because they do not earn enough, or are not salaried employees and lie about their income. But the government raises income in so many other ways apart from VAT - tobacco tax, alcohol taxes, car taxes, and punitive import tariffs. Also a complicated licencing system - my wife has to have 4 separate annual licences for her shop.

 

If the government was less corrupt maybe people would be more willing to pay taxes - they just take their lead from the government.

[robblok]

The resistance to pay tax is because the goverment takes a cut from it. Why would one want to pay tax if you know that the goverment is corrupt. Why give money knowing a lot of it will be stolen. 

 

Nobody likes paying taxes, but its extra bad if you know it will be misused. 

[Valentine]

On 4/4/2021 at 8:33 AM, Peterw42 said:

I agree, otherwise why even mention it, or point out how low it is compared to others.

 

On 4/4/2021 at 8:14 AM, tracker1 said:

Who suspects this is a warming to an increase in VAT any time soon !

From the OP "Minister of Finance Arkom Termpitayapaisit, said today that the VAT rate being used until September this year will be maintained for another year"

[impulse]

On 4/4/2021 at 2:52 AM, KarenBravo said:

It's a consumption tax. The more you consume, the more you pay. Sounds fair to me.

 

The other thing that makes a VAT fair is that, if you consume something in Thailand, you pay the tax on it in Thailand. 

 

You can't shift the revenue and pay taxes at a ridiculously low rate in (for example) Ireland or the Caymans.

 

Edited April 5, 2021 by impulse