Central Bank Chief Concerned about VAT Freeze

The Bank of Thailand has suggested the government find alternative means of income after deciding to maintain the value-added tax rate for another two years, warning that an imbalance could occur against expenditures and pointing out the loss of opportunity to develop the Kingdom's competitive edge.

Governor of the Bank of Thailand, or BOT, Tarisa Watanagase, has expressed concern over the long-term implications of a Cabinet decision to hold the value-added tax, or VAT, rate at seven percent for two more years.

Tarisa acknowledged that public debt does not pose any problem for the administration but reminded that it must think in the long term, as well as in term of international competition.

The BOT governor pointed out that the nation's taxation scheme is insufficient for growth into the future.

Tarisa explained that an increase of one percent in any form of tax would result in close to 70 billion baht more revenue for the state.

A hike of VAT to ten percent would mean 210 billion baht more income for the government.

The Finance Ministry later defended holding the VAT rate, saying that the Thai economy is still in a state of recovery and the government is still receiving sufficient revenue.

The administration has decided to avoid burdening the public at this juncture and the VAT freeze is designed to allow businesses to develop on their own.

The ministry also noted that despite the 2011 budget showing a deficit, it will not have any long-term implications on the economy as broader tax adjustments are currently being studied.

-- Tan Network 2010-08-05

VAT increase will only hurt businesses as demand drop. Overall, demand will be affected as VAT included prices will deter people from buying. Broadly speaking, the mass will suffer more. Instead, government can improve revenus by reviewing the personal tax system for the wealthy, be more efficient in collection, land tax which belongs to the rich and sin tax.