Thai Revenue Department Ready To Cut Corporate Tax

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Revenue Department ready to cut corporate tax

By Wichit Chaitrong

The Nation

The Revenue Department is ready to cut the corporate income tax rate, though it is also proposing a rise in the value-added tax (VAT) rate, says Satit Rungkasiri, director-general of the department.

The department will implement the tax policies promised by the Pheu Thai Party, which will lead the new coalition government, he said.

The party plans to cut corporate income tax from 30 per cent to 23 per cent immediately when it takes office. It later plans to cut the rate to 20 per cent.

The tax cut is part of the new government's efforts to lower costs for businesses that will be affected by its minimum-wage rise policy.

Satit said the cut could result in revenue losses of Bt150 billion per year.

The cut will attract foreign direct investment and the new tax rate will be in line with rates in other Asean countries, said Satit.

Among Asean countries, only the Philippines and Thailand collect corporate tax at the high rate of 30 per cent of firms' profits.

The Pheu Thai Party does not propose to increase the VAT rate. Satit, however, suggested that the new government should increase VAT, saying the current rate of 7 per cent was relatively low.

VAT should rise when the economy expands, said Satit.

"More countries are raising VAT rates. VAT is an important source of government revenue and most countries impose VAT rates ranging from 10 per cent to as high as 30 per cent," said Satit.

Japan and South Korea collect the lowest VAT rates of 5 per cent, Satit said.

The VAT rise would not hurt the poor, since VAT is exempted on necessities, though it will affect the rich, who consume more goods and services than the poor do, said Satit.

He said the department also planned to increase tax revenues by improving information links between the Bank of Thailand and the Commerce Ministry, allowing the department to access real-time information about business transactions.

Tax revenue is currently about 16 per cent of gross domestic product (GDP). The level of tax income is relative low, given the current stage of economic development as a middle-income country.

Satit said tax receipts should reach as high as 20 per cent of GDP, enabling the government to finance its promised projects.

The department this year expects to collect Bt180 billion more tax revenue than targeted, due to a solid economic recovery, he added.

Many economists have expressed support for the idea of a VAT rise to 8-10 per cent.

-- The Nation 2011-07-25

[bkkjames]

I see, help big businesses at the expense of common poor folks-didnt hear about this during the recent election campaign?

[DP25]

Tax revenue is currently about 16 per cent of gross domestic product (GDP).

Already one of the lowest in the world. In Europe it is 30-50%. If you want European style social programs, they have to paid for. That means rich people and corporations have to pay taxes. Tax evaders have to be punished. Massive grey economy has to be recorded and regulated so it can be taxed.

Lower taxes on corporations, pardon billionaires and return their money, but promised minimum wage rise no longer possible. Party of the common man indeed

The VAT rise would not hurt the poor, since VAT is exempted on necessities, though it will affect the rich, who consume more goods and services than the poor do, said Satit.

I wouldn't expect it, imported luxury cars are pricey enough already

[visions]

I see, help big businesses at the expense of common poor folks-didnt hear about this during the recent election campaign?

You must have had a big sleep??? It was widely publicised during the election campaign. Lowering Corperate rates was one of the PTP plans to offset the rise in minimum wage rates. It will increase employment by attracting more companies into Thailand. If the business environment in Thailand is not conducive to companies profitability then they will move elswheer that is.

The Government actually collect MORE tax as a result of the decrease in rates. Has been proven in many countries that have reduced corperate tax rates.

Edited July 25, 2011 by visions

[OzMick]

"The cut will attract foreign direct investment.........." at the same time as a large wage hike scares them away. dam_n, we haven't got enough revenue so we'll increase VAT, increasing inflationary pressures, and increasing the tax burden on the poorest members of society.

Of course, there is a way round this - encourage the poor to buy shares! I wonder if PTP need another financial adviser?

[bkkjames]

I see, help big businesses at the expense of common poor folks-didnt hear about this during the recent election campaign?

You must have had a big sleep??? It was widely publicised during the election campaign. Lowering Corperate rates was one of the PTP plans to offset the rise in minimum wage rates. It will increase employment by attracting more companies into Thailand. If the business environment in Thailand is not conducive to companies profitability then they will move elswheer that is.

The Government actually collect MORE tax as a result of the decrease in rates. Has been proven in many countries that have reduced corperate tax rates.

Hmm ok, guess I missed that poster in between all the tablet pcs and other goodies. I have no real issue in lowering corporate tax per say, however raising vat will not encourage spending will it-probably the opposite? Want to raise more tax revenues?, try going after every cash based business here running two tills.

[Galong]

"The VAT rise would not hurt the poor, since VAT is exempted on necessities" how utterly unrealistic can they get? The low to moderate income people who are self-employed, which is a huge portion of the population, are supposed to pay VAT on income. This is the same whether they are running a factory or a sign shop (for example). The VAT affect everyone in business. It's not just affecting those who purchase luxury items.

Increase the VAT and everyone will simply start claiming even less income to counter it.

Raise it too much, and foreign investors will simply go elsewhere. This isn't rocket science, but evidently it's beyond their mental capacity... geez.

[dcutman]

Well history will show everybody the so called ''Trickel down effect" only benefits the rich.

When they say raising the VAT Really only affects the rich. What a load of crap. The rich are only 1 to 5% of the population of any country.In Thailand Its probobly under 1% and there is not much in between, its either filthy rich or dirt poor. So in the 65,000,000 people in Thailand 650,000 are rich, maybe a few more or less. HMMM so the 64,350,000 non-rich people are going benefit from a higher VAT, and lower cooprate tax.

Can U say I was born at night but not last night.

[geriatrickid]

"The cut will attract foreign direct investment.........." at the same time as a large wage hike scares them away. dam_n, we haven't got enough revenue so we'll increase VAT, increasing inflationary pressures, and increasing the tax burden on the poorest members of society.

Of course, there is a way round this - encourage the poor to buy shares! I wonder if PTP need another financial adviser?

Fiscal policy isn't one of your strong suits is it? Payroll is a business expense taken against revenues when calculating tax. Yes some wages will increase but it will be offset for those businesses that pay their taxes. It is a major incentive to make a more honest tax declaration. Do the math. You just can't resist taking a cheap shot at the PTP can you?

VAT is a more effective means of tax collection in an environment where there is rampant tax avoidance. The tax revenue gathered from consumer purchases is significantly smaller than VAT that is collected on material inputs. The increase in VAT hits the black market for goods and services hard because there is a greater likelihood of collecting the tax. The VAT increases for the poor consumer will be relatively insignicant if the increase is under 3%. Are you even aware what is exempt from VAT? Thai Visa has a section if you do not believe the following;

Exemptions

-Businesses whose annual turnover is less than1.2 Million Baht;

-Sales and import of unprocessed agricultural products and related goods suchas fertilizers, animal feeds, pesticides, etc.;

-Sales and import of newspapers, magazines, and textbooks;

-Basic services such as; transportation - domestic transportation andinternational transportation by way of land,

-Healthcare services provided by government and private hospitals as well asclinics.

-Educational services provided by government and private schools and otherrecognized educational institutions,

-Professional services - Medical and auditing services, lawyer services incourt and other similar professional services that have laws regulating suchprofessions,

-Renting of immovable properties.

-Cultural services such as amateur sports, services of libraries, museums,zoos;

-Services in the nature of employment of labour, research and technicalservices and services of public entertainers;

-Goods exempted from import duties under the Industrial Estate law importedinto an Export -Processing Zones (EPZs) and under Chapter 4 of the CustomsTariff Act;

Other services such as religious and charitable services, services ofgovernment agencies and local authorities.

The poor person that transacts with a small merchant such as a food retailer will not be seriously impacted because of the product and business class. Nor will a poor person's rent increase because rent is VAT exempt. This will impact the people that sell goods and services and do not remit taxes. More importantly, the VAT tax is taken against earnings so businesses that do make an honest tax declaration will not be seriously impacted either.

[geriatrickid]

Well history will show everybody the so called ''Trickel down effect" only benefits the rich.

When they say raising the VAT Really only affects the rich. What a load of crap. The rich are only 1 to 5% of the population of any country.In Thailand Its probobly under 1% and there is not much in between, its either filthy rich or dirt poor. So in the 65,000,000 people in Thailand 650,000 are rich, maybe a few more or less. HMMM so the 64,350,000 non-rich people are going benefit from a higher VAT, and lower cooprate tax.

Can U say I was born at night but not last night.

I believe your comment is misplaced. Your are taking the legitimate criticisms applied to income taxes and applying them to the VAT. Read the VAT exemptions. New Zealand, Australia and Canada proved conclusively that the use of a VAT system reduced tax avoidance. The people that pay more taxes are those that evaded taxes to begin with.

[hammered]

Cut corporate tax and increase VAT equals shift the tax burden to the poor. Im not sure the incoming government should do that. IT is only usually right wing lunatic governments who believe the poor should subsidise the wealthy that propose such things. In society there should be an onus on the wealthy to pay more than the poor if that society wants to have a viable future. Enforcing tax payment and closing tax loopholes that the wealthy exploit should be more than enough to cover any proposed corporate tax cut. One of the problems in most countries is that there arent enough taxes collected from the rich and making punitive tax increase that affect everyone because you cant find ways to close loopholes that the wealthy take advantage of is not the way forward.

That kind of nonsense is used in deluded western countries that currently face economic disaster because of their insistance on cutting taxes while borrowing form abroad to pay for them and waging wars of choice without levying war tax. Cutting taxes on a whim as western governments do is not a panacea for all things good but a disaster waiting to happen as they are finding out now. Lets hope Thailand doesnt go that way. Oh and of course cutting coporate tax enables the companies to free up money to invest abroad while contributing less to the local treasury as we see also see across the west

[dcutman]

Well history will show everybody the so called ''Trickel down effect" only benefits the rich.

When they say raising the VAT Really only affects the rich. What a load of crap. The rich are only 1 to 5% of the population of any country.In Thailand Its probobly under 1% and there is not much in between, its either filthy rich or dirt poor. So in the 65,000,000 people in Thailand 650,000 are rich, maybe a few more or less. HMMM so the 64,350,000 non-rich people are going benefit from a higher VAT, and lower cooprate tax.

Can U say I was born at night but not last night.

I believe your comment is misplaced. Your are taking the legitimate criticisms applied to income taxes and applying them to the VAT. Read the VAT exemptions. New Zealand, Australia and Canada proved conclusively that the use of a VAT system reduced tax avoidance. The people that pay more taxes are those that evaded taxes to begin with.

No I dont think so. If you replace a tax to serve another, and that tax that that is increased to serve another burdens 99% of the population. BLA BLA BLA the poor will always pay the lion share. In Thailand it will have a magnified effect as far as I can see.

Edited July 25, 2011 by dcutman

[jaltsc]

The trickle down effect does work. It starts at the top and trickles down to the penthouse first. From there it seems to disappear until it trickles down to the Mercedes dealership, gambling dens in Macau, foreign maids and servants (very slow and minimal trickle here) and of course all those wonderful foreign imports found in the fancy super markets and appliance stores. However, it doesn't seem to trickle down to the poorer citizens. They still struggle in the fields, eat the same food (by the way which is not a bad thing since the rich f*^%ers and their fat kids are killing themselves on KFC, McDonald's, and and all the other western crap), and doesn't increase their spending on domestic products.

Somehow the trickle never reaches those living below the penthouse. But, then again, it was not supposed to. All anybody needs to remember is the golden rule..."He who has the gold, makes the rules", and it is usually for his own benefit.

Edited July 25, 2011 by jaltsc

[OzMick]

"The cut will attract foreign direct investment.........." at the same time as a large wage hike scares them away. dam_n, we haven't got enough revenue so we'll increase VAT, increasing inflationary pressures, and increasing the tax burden on the poorest members of society.

Of course, there is a way round this - encourage the poor to buy shares! I wonder if PTP need another financial adviser?

Fiscal policy isn't one of your strong suits is it? Payroll is a business expense taken against revenues when calculating tax. Yes some wages will increase but it will be offset for those businesses that pay their taxes. It is a major incentive to make a more honest tax declaration. Do the math. You just can't resist taking a cheap shot at the PTP can you?

VAT is a more effective means of tax collection in an environment where there is rampant tax avoidance. The tax revenue gathered from consumer purchases is significantly smaller than VAT that is collected on material inputs. The increase in VAT hits the black market for goods and services hard because there is a greater likelihood of collecting the tax. The VAT increases for the poor consumer will be relatively insignicant if the increase is under 3%. Are you even aware what is exempt from VAT? Thai Visa has a section if you do not believe the following;

Exemptions

-Businesses whose annual turnover is less than1.2 Million Baht;

-Sales and import of unprocessed agricultural products and related goods suchas fertilizers, animal feeds, pesticides, etc.;

-Sales and import of newspapers, magazines, and textbooks;

-Basic services such as; transportation - domestic transportation andinternational transportation by way of land,

-Healthcare services provided by government and private hospitals as well asclinics.

-Educational services provided by government and private schools and otherrecognized educational institutions,

-Professional services - Medical and auditing services, lawyer services incourt and other similar professional services that have laws regulating suchprofessions,

-Renting of immovable properties.

-Cultural services such as amateur sports, services of libraries, museums,zoos;

-Services in the nature of employment of labour, research and technicalservices and services of public entertainers;

-Goods exempted from import duties under the Industrial Estate law importedinto an Export -Processing Zones (EPZs) and under Chapter 4 of the CustomsTariff Act;

Other services such as religious and charitable services, services ofgovernment agencies and local authorities.

The poor person that transacts with a small merchant such as a food retailer will not be seriously impacted because of the product and business class. Nor will a poor person's rent increase because rent is VAT exempt. This will impact the people that sell goods and services and do not remit taxes. More importantly, the VAT tax is taken against earnings so businesses that do make an honest tax declaration will not be seriously impacted either.

I might not have an MBA, but I seem to have a better grasp than you. Companies come to 3rd world countries because the wages are low; raising wages and decreasing company tax only works for the company if the tax hike is greater than the wage rise; but as the wage rise and VAT increase is likely to set off an inflation spiral, the level of uncertainty increases, making investment decisions harder. Spokesman for the SME council (96% of Thai businesses) and Standard and Poor's seemed to agree, but what would they know. Lowering the company tax will benefit the people who own major Thai businesses - if the aim was to attract NEW FI business, why not do it in a more targetted manner such as an initial tax holiday, or tax free zones.

VAT actually increases tax avoidance. Nearly any tradesman that quotes work at your home will offer two prices, with and without. He will pay VAT on materials, and off-set his receipts against the next VAT job. Businesses that don't pay VAT now will continue to cook their books, dropping below the reporting income. If the business can't see a benefit of dodging VAT, why do they go to the trouble - quite likely because they don't appreciate the tax office forcing them to do additional paperwork for no return. Every honest business that I know of considers VAT and its inherent paperwork a pain in the butt.

VAT always hits the poorer classes harder percentage-wise when they buy VAT taxed items. In Australia when it was introduced there was a significant increase in social security benefits to cover the extra costs. I expect it would be the same elsewhere. Your list of exemptions is truly wonderful - I wonder where to find TVs, motorcycles, telephones, steros, or even a pick-up, the first things that the poor aspire to. Seen many homes in Thailand without a TV? or a motorcycle? Or a mobile phone?

Just out of curiosity, is VAt one of the laws you comply with, or did you decide it wasn't serious enough?

[dcutman]

It is all about greed now days. Every company or coorporation on earth is expected to improve the bottom line under any circumstance. By lowering a tax is by far the easiest way to do that. It does not cost anything. Well every rich person in the world thinks the same for there own bottom line. Since the top 1% of the population on earth own, controle, and make all the policy. It is up to them, no mater how many poor folk try to vote them out (if they have that option to vote).

Now when you raise a sales tax or VAT to replace the revenue from a lowerd cooperate tax rate. Yes the top 1% are effected, but in no way as much as the other 99%. Even if food is exempt from tax.

From what I read from other posts, if you are in that 99%, what more do you need than food? The rich are going to buy everything else.

[Pib]

The VAT rise would not hurt the poor, since VAT is exempted on necessities, though it will affect the rich, who consume more goods and services than the poor do, said Satit.

I don't know what "necessities" do not have VAT applied, but I'm sure poor folks also buy things directly or indirectly that are not considered necessities by the bureaucrats and thereby, have VAT applied. VAT is generally a regressive tax since a poor person would pay the same VAT or Thing-XYZ from a meager salary as a rich person living on a high salary would pay for the same thing. And what income level means you are poor?...govt like to set the income level to be classified poor usually at a very low level.....where a person feels he/she is poor may not agree with what the govt considers poor.

Whether the VAT system works well in a country all depends on the overall tax system of that country. Personally, I think the VAT is "just another regressive tax." But in a country where so many do not pay income taxes or file tax returns, I guess a VAT is the only way to collect some tax from everyone, be you poor, middle income, or rich. Now, in advanced, rich countries where the great majority of people pay income taxes/file tax returns, I see a VAT as just another tax...a way for the govt to collect more taxes on top of the income taxes. But like I said, it all depends on the overall tax system for that country.

Edited July 25, 2011 by Pib

[kuffki]

why and how many here comparing Europe to Thailand?

In Most European countries people also have welfare, unemployment benefits and tons of other benefits, not to mention government is responsible for roads and everything else.

VAT, GST are nothing but money making machine for the government, it in no way helps the people rich or poor.

I remember the same kind of argument was put to me by a taxi driver back in Oz, at the time when GST was about to be introduced. He was beyond happy, because in his small mind he was excited that he could buy TV and Car cheaper(GST replaced other taxes) but it never crossed his uneducated brain that he would not be buying new car or tv every week, but will be paying extra tax every minute of every day.

Even after spending an hour explaining it to him, he was still convinced that GST was best thing ever. I am sure, now he is forced to live somewhere on the outskirts of Sydney, as living in the city is no longer affordable by working class people.

So i seriously doubt increasing VAT would help the people, while corporate tax cuts will not have much affect as more than half do not even pay tax or are even registered business.

But then again, many do not register for VAT so again pretty useless exercise in my opinion

[siampolee]

All that is going to happen is that the fat cats will get fatter, Somchai and Porntiip who work in industry, .transport, the whole range of employment etc will on their meager incomes be paying far more percentage wise on their incomes with a rise in V.A.T than the fat cats that employ them.

Economics Thaksin style, give the people 5 baht of their money. Then those gullible fools pay back via V.A.T 500 baht , a profit of 495 baht for the manipulative politicians and their paymasters. Throw another peasant on the fire dear it's going out.

Six to nine months and the fecal matter is going to hit the fan. The stock market is booming, foreign funds are flowing in and the inflation cycle is just starting again, just like 1997 when a few dishonest people made fortunes upon the devaluation of the Baht. When the big bang along with the I.M.F.bailiffs came.Somchai and Portip picked up the bill for that one just like they will the next one.The fat cats ran all the way to the foreign banks and foreign domiciles having gutted a number off financial institution here in Thailand

Nothing like an action replay is there?

[Puccini]

VAT has been around for a long time but I still fail to understand why I have to pay tax on my income twice: the first time when I earn the money it and the second time when I spend it.

[SolarOhm]

Lowering Corporate Income Tax rates is unlikely to attract Big Business - as Big business is able to structure itself through out the world to pay around 5% tax only.

SMEs too can lower their effective company tax by structuring their business better and by taking advantage of the various Govt. allowances and incentives - such as R&D and Training.

It is the VAT that will have a greater impact - and which is hard to mitigate against. Increasing VAT is not only bad for business, it bad for consumers and will cause price inflation. That would impact negatively on the Thai economy and push it towards the same disastrous Govt bureaucratic systems now prevalent in the Western economies