Thai Economists Urge Tax Reform

[webfact]

EYE ON THE ELECTION

Economists urge tax reform

By Seetalavajit Sabayjai

The Nation

The new government should focus more on tax restructuring, as it is the key to maintaining fiscal discipline amid greater need for infrastructure investment and spending on social programmes, economists say.

In Photo: Somchai, second from left, is speaking on tax restructuring at the roundtable discussion. Other speakers are Kampon of Siam Commercial Bank, far left, Korbsak and Sakon.

In the first in a series of Krungthep Turakij-Nation election forums, this time focusing on fiscal security, Somchai Jitsuchon, research director of the Thailand Development Research Institute, said that in the past five years, government revenue had only barely covered expenses. This had prompted the need to borrow to finance investment projects. There is a problem in the tax system that needs to be fixed, he said.

Korbsak Sabhavasu, the chief campaign strategist of the Democrat Party, which is vying for the largest number of seats in Parliament in the next election, responded positively to the suggestion.

However, rather than seeking to widen the taxpayer base, he said the new tax structure would be more biased towards resource consumption.

"Hardworking people should not be greatly taxed, but those who consume lots of resources should be subjected to higher taxes," he said. There should be tax reform within one year, he said.

Somchai suggested a reduction in corporate income tax, adjustment of promotional privileges provided by the Board of Investment, increase of valueadded taxes and excise taxes, and expanding the revenue base of personal income tax.

"The new world is engaged in high valueadded [activities] and tax incentives are less important," he said. "Now, VAT [in Thailand] is far lower than the international level and is ranked in the last 10 countries in a survey that covers more than 100 countries. It may be time to raise VAT. Also, everyone should be taxed on taxability without any exceptions."

Somchai suggested lower BoI tax privileges in return for reduced red tape and improvement in the investment environment. Taxation by taxability means the base would encompass some rich farmers and housewives who earn a living through rents. Property taxes should be imposed, which could generate Bt90 billion per annum in revenue.

Now, collected taxes account for 17 per cent of GDP, while the World Bank suggests 20-21 per cent, Somchai said.

Adjusting the structure should generate about Bt300-Bt400 billion more in annual government revenue. That should leave the state with enough money to invest in infrastructure and basic welfare and cap the public debt ceiling at no more than 60 per cent of gross domestic product, he said. "Then, there would be no problems with the fiscal stance."

Sakon Varanyuwatana, associate professor at Thammasat University's Faculty of Economics, also asked for accelerated tax reform. Those taxed at 30 per cent corporate income tax are small enterprises while large companies are listed on the stock market and enjoy tax savings.

The political sector should focus on efficiency and leakage and that might be an answer for the lack of political continuity, said Kampon Adireksombat, a senior economist for Siam Commercial Bank's Economic Intelligence Centre.

The series will run throughout this and next month, focusing on political parties' campaigns on energy security, education, healthcare, the environment, mega project investment, competitiveness and corruption.

-- The Nation 2011-04-25

[asiawatcher]

I would think most intelligent economists would realise stimulus to business not tax, gets more people employed and far greater through put of goods and services thus generating higher GDP. The 'cash' economy in Thailand is far greater than many would realise. And it is never taxed.

VAT and many 'other' taxes such as sales tax and import taxes, customs 'duty', fuel taxes and so on are all over the place. It has been proven time and time again, to take around 3% flat tax on income from all businesses and people across the board, collectable during banking, solves all the countries needs as well as being readily available and if I was to run an election and tell all the wage earners I will reduce their present tax levels to 3% I bet I would get all their votes.

Similarly, if business were to be taxed 3% on receipts not 30+% they would have no need to hide or do creative accounting and companies who earn billions of baht annually who now pay a pittance, will fall into line as a small flat tax will easily be factored and the country could move forward in leaps and bounds. Yes, there will still remain a large cash economy but there would not be too much reason not to bank funds and pay a small surcharge. It would also solve a few 'corruption' issues.

But this is logic and that does not exist in Thailand.

[TAWP]

VAT primarily strikes against the poor.

Social programs in many cases means 'handouts' [in the west] and are detrimental to the poor in the long run.

Would be nice if Thailand avoided going the socialist or corpro-fascist direction of some western nations...

Edited April 25, 2011 by TAWP

[gregb]

However, rather than seeking to widen the taxpayer base, he said the new tax structure would be more biased towards resource consumption.

"Hardworking people should not be greatly taxed, but those who consume lots of resources should be subjected to higher taxes," he said.

What? An economist making an intelligent comment for once? I guess miracles do happen. Yes, resource consumption is what is currently killing the global industrial economy. Our tax policy needs to be restructured to encourage conservation, minimize economic growth (read increasing resource consumption), and find ways to promote those activities which spread the wealth around so that everyone's basic needs are met cheaply. This is a formula for stability, which is going to be the critical factor in the coming era of decline.

One thing I would caution though is that any kind of consumption tax needs to make sure that a minimum level of survival can be met tax free. Taxing people just trying to survive simply increases the cost of everything. The model of taxing consumption only works when that consumption truly is discretionary.

[Ricardo]

Good to see this topic being raised pre-election, rather than just assuring the voters that there will be a chicken in every wok, and the cost of cheap-beer will be subsidised !

Personally I would propose a tax on brown-envelopes !

[mccw]

Generaly id say i agree with what he's laid out.

Although Something I think would be an idea to consider as a part of his policy would be a tiered VAT rate; meaning increases at price intervals. so the everyday items arnt adversely affected and the real poor aren't impacted too much, but then a higher rate would b on discretionary more expensive things like TVs , steros, bling etc and then a top rate from say 500k so luxury cars, yatchs and such would be on perhaps 20 or 25%.

Edited April 25, 2011 by mccw

[ib1b4]

Generaly id say i agree with what he's laid out.

Although Something I think would be an idea to consider as a part of his policy would be a tiered VAT rate; meaning increases at price intervals. so the everyday items arnt adversely affected and the real poor aren't impacted too much, but then a higher rate would b on discretionary more expensive things like TVs , steros, bling etc and then a top rate from say 500k so luxury cars, yatchs and such would be on perhaps 20 or 25%.

GET YOUR FACTS RIGHT .. you cleartly do not understand the currant system that is in place

[whybother]

Generaly id say i agree with what he's laid out.

Although Something I think would be an idea to consider as a part of his policy would be a tiered VAT rate; meaning increases at price intervals. so the everyday items arnt adversely affected and the real poor aren't impacted too much, but then a higher rate would b on discretionary more expensive things like TVs , steros, bling etc and then a top rate from say 500k so luxury cars, yatchs and such would be on perhaps 20 or 25%.

GET YOUR FACTS RIGHT .. you cleartly do not understand the currant system that is in place

Is there a different tax on dried grapes?

But forgetting the spelling mistake, what is the current system in place?

Edited April 25, 2011 by whybother

[whybother]

VAT primarily strikes against the poor.

Social programs in many cases means 'handouts' [in the west] and are detrimental to the poor in the long run.

Would be nice if Thailand avoided going the socialist or corpro-fascist direction of some western nations...

I thought VAT taxed those who consumed more ... ie the rich.

In a lot of countries, VAT (or GST) isn't charged on basic goods such as food.

[TAWP]

VAT primarily strikes against the poor.

Social programs in many cases means 'handouts' [in the west] and are detrimental to the poor in the long run.

Would be nice if Thailand avoided going the socialist or corpro-fascist direction of some western nations...

I thought VAT taxed those who consumed more ... ie the rich.

In a lot of countries, VAT (or GST) isn't charged on basic goods such as food.

A general VAT of 25% hits the low-income families worse than those that have enough for their living and have additional to spend on luxury consumption. When one is a low-income family every baht counts.

And in a lot of countries VAT is indeed charged on basic goods such as food. In my home-country it is 25%. With the exception of 'basic ingredients' (i.e. flour etc, so if you make your own bread from scratch) then it is 12.5%...

VAT was added as a temporary tax during WW2 in many European countries. However as we quickly learn, temporary taxes have a tendency to become permanent and widened. And indeed this one was too.

Taxes are seen as a golden goose for every nations governments. To be widened and raised to increase the pool of money to play with.

It is extortion where the victim can go to jail for refusal to pay up the 'protection money'.

[miksguevara]

VAT primarily strikes against the poor.

Social programs in many cases means 'handouts' [in the west] and are detrimental to the poor in the long run.

Would be nice if Thailand avoided going the socialist or corpro-fascist direction of some western nations...

I thought VAT taxed those who consumed more ... ie the rich.

In a lot of countries, VAT (or GST) isn't charged on basic goods such as food.

well yeah but as a propotion of disposable income it hits the poor much more

[mccw]

Generaly id say i agree with what he's laid out.

Although Something I think would be an idea to consider as a part of his policy would be a tiered VAT rate; meaning increases at price intervals. so the everyday items arnt adversely affected and the real poor aren't impacted too much, but then a higher rate would b on discretionary more expensive things like TVs , steros, bling etc and then a top rate from say 500k so luxury cars, yatchs and such would be on perhaps 20 or 25%.

GET YOUR FACTS RIGHT .. you cleartly do not understand the currant system that is in place

What u on about? I didn't lay out any facts to get wrong! Tiered vat is an idea I just put forward. So essentials would remain affordable, discresionary items and luxuries can b milked for a bit more revenue.

Even the article didn't talk about the current system much but ideas for future policy.

Try reading everything again slowly and then think about it a bit before commenting on what is actualy being talked about.

Edited April 25, 2011 by mccw

[yoshiwara]

VAT primarily strikes against the poor.

Social programs in many cases means 'handouts' [in the west] and are detrimental to the poor in the long run.

Would be nice if Thailand avoided going the socialist or corpro-fascist direction of some western nations...

I thought VAT taxed those who consumed more ... ie the rich.

In a lot of countries, VAT (or GST) isn't charged on basic goods such as food.

well yeah but as a propotion of disposable income it hits the poor much more

Indeed and that bright spark idea of taxing property? that will put rents up.

[Ricardo]

GET YOUR FACTS RIGHT .. you cleartly do not understand the currant system that is in place

Thank-you for raisin this point !

well yeah but as a propotion of disposable income it hits the poor much more

Happily DL has assured us, that all Thais will be rich 6 months after he returns, so there will be no poor to be affected by this !