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NATION ROUNDTABLE

Tax restructure needed to boost govt revenue

By Nophakhun Limsamarnphun

The Nation

Capital gains tax seen as good way to cut wealth disparity between rich, poor

A well-known Thai housing estate developer recently reaped a handsome Bt3-billion profit after selling a big chunk of shares in his listed property firm.

He did not pay any tax on his massive windfall profit - which raises serious questions about the fairness of this loophole to society at large.

Should Thailand come up with a windfall tax to re-distribute income and boost state revenue for public welfare schemes?

At a Nation Roundtable on social welfare and populist policies, held last Thursday, Korbsak Sabhavasu, the prime minister's secretary-general, said the country badly needed to broaden its tax revenue base to finance national development.

Out of the 60-million population and a workforce of about 30 million, there are currently about five million salaried workers nationwide, who reliably pay personal income tax every month.

Most of the remaining workers, especially daily wage earners, do not pay income tax because their wages are not high enough to be taxable.

On the other hand, the wealthy have a lot of leeway to evade tax.

"When you see a Ferrari driver in Bangkok, he or she is mostly likely not a salaried worker," Korbsak said.

As a result, most of the rich do not pay taxes properly and it's more difficult to tax them than employees on the payroll.

Besides, Thailand has neither a windfall tax nor a capital gains tax - so people who making huge profits on the stock market are exempt from paying their dues.

Ampon Kitti-ampon, the outgoing secretary-general of the National Economic and Social Development Board (NESDB), shared the opinion, admitting the country had failed to evenly distribute national income.

"Our GDP has doubled to Bt10 trillion, but people in the Northeast, who account for one-third of the entire population, are today poorer than a few decades ago as their share of GDP is down to one tenth from one eighth.

"Today, owners of capital control about 70 per cent of the national economy, while workers and skilled operators share the remaining 30 per cent. Hence, we're still far from a model of inclusive economic growth," said Ampon, who is set to be Cabinet secretary-general on October 1.

Uneven income distribution and economic development have inevitably led politicians to turn to populist and welfare policies to win votes. But what are the differences between the two?

Pornsil Patcharintanakul, deputy secretary-general of Thai Chamber of Commerce, told the Roundtable that populism in the 1980s could be seen as an ideology between capitalism and socialism.

"It highlights the role of communities (in national development). On the other hand, state welfare is more established and there are varying forms, starting with what could be called social security and the social safety net to the highest degree, social welfare. In my opinion, a welfare state is costly, as in Scandinavia's 'from-cradle-to-grave' welfare (in which tax collection as a percentage of GDP could be as high as 40-50 per cent, compared to Thailand's 14-17 per cent).

"Secondly, we've to ensure that our welfare or populist policies are sustainable, efficient and effective in terms of narrowing the gap between rich and poor, and in terms of boosting national productivity."

Pornsil and other panellists said basic state services for the people - such as healthcare and education - should be regarded as social welfare measures. But moves such as reducing farmers' debts and the Bt76-billion Village Fund programme, or cash hand-outs, were "populist" moves aimed at winning votes.

Based on these criteria, the Abhisit government has implemented both social welfare and populist measures, as did previous governments, including those of former premier Thaksin Shinawatra, who was famous for his populist policies.

The Abhisit government's policy of providing 15 years of free public schooling is a social welfare scheme, while his earlier cash handout of Bt2,000 per person was populist.

The universal healthcare scheme is also a social welfare programme, but debt reduction for farmers and other poor people is a populist move.

Sompong Tancharoenphol, vice-chairman of the Federation of Thai Industries, said he doesn't mind if a measure is a populist and social welfare one - as long as it's effective in improving people's welfare.

"More importantly, there shouldn't be abuse or leakage of public funds in these schemes. It's good for the government to spend billions on free-of-charge education, but more should be done to improve the quality of teachers and other software," he said.

After all, both populist and welfare policies need funds, but current funding is not enough so there should be tax reform to boost government revenue. The Finance Ministry will have to find new ways to generate more income. Besides capital gains and windfall taxes, the ministry should consider a value-added tax (VAT) hike from the current 7 per cent rate, among other measures.

-- The Nation 2010-09-13

[cloudhopper]

IMO we can expect increases in tax rates in most countries as the debt bubble collapses.