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TAXES

No change in VAT not to affect fiscal budget

By THE NATION

Finance Minister Korn Chatikavanij insisted yesterday that the Cabinet's move to keep the value-added tax at 7 per cent for two more years would not stretch the fiscal budget thin.

"The decision will allow continued recovery. It's not a vote-getting scheme. It has been over 10 years that the government has earned little from this tax. The economic recovery has allowed us to achieve the revenue target. As such, this decision has no impact on the fiscal position," he said.

Without the extension to September 2012, consumers would shoulder a 10-per-cent VAT starting in October.

Introduced in January 1992, the VAT has never been raised to its 10-per-cent standard rate.

Three administrations have decided to let the VAT stay at the reduced 7-per-cent rate as a temporary measure to spur investment and spending - first in 1999, second in 2008 and then this year.

Korn's deputy Pradit Pataraprasit said the decision would not undermine the 2011 budget, as it was completed on the assumption that no change would be made to the VAT rate.

However, the VAT would still be part of the Finance Ministry's pending overhaul of the overall tax structure, he said.

At 7 per cent, the VAT contributes about 30 per cent of the government's revenue, according to the latest fiscal figures.

The corporate sector welcomed the decision.

Payungsak Chartsutipol, chairman of the Federation of Thai Industries, said it best fits the current economic environment, as a hike could squeeze consumption and fuel inflation.

Tisco Securities expects core inflation, which excludes volatile food and fuel items, to rise by 2.5 per cent next year from 1.2 per cent this year.

The Bank of Thailand targets 2011 core inflation at 2-3 per cent in its latest inflation report.

Tarisa Watanagase, central bank governor, said maintaining the VAT rate would not worsen the government's debt burden.

However, the government has yet to address the problem on how to balance its revenue and expenses in the long term, given the small tax base, she added.

-- The Nation 2010-08-04