Thai VAT hike will give more room for budget deficit: Sommai

[webfact]

VAT hike will give more room for budget deficit: Sommai
Erich Parpart
The Nation

BANGKOK: -- The Finance Ministry is likely to increase the value-added tax (VAT) by at least 1 per cent at the end of next year, giving it room to widen the budget deficit by more than Bt300 billion in fiscal 2016, above the 12-13 per cent in the current (2015) budget.

Presently, the VAT rate is set at 7 per cent.

"The increase of VAT by 1 per cent, however, should be enough, as that is the minimum rate of increase," Finance Minister Sommai Phasee said.

While public debt at 46 per cent of gross domestic product is still relatively low and international reserves are still high, it would mean the government could afford more off-budget borrowing, he said.

The government has adopted a budget of Bt2.575 trillion for fiscal 2015 with a deficit of Bt250 billion or 1.9 per cent of GDP along with a state enterprises budget of Bt300 billion.

More investment planned

Sommai told investors at the "Asia Wealth Forum 2015 Investment Outlook", organised by Asia Wealth Securities yesterday, that since the political situation had returned to stability, the government could and would definitely invest more, especially in transport infrastructure, water management projects, and social welfare such as health and education. These investments would require the government to have a bigger budget.

Planning for the 2016 budget will begin in the middle of January 2015.

"The government budget could be increased to Bt2.88 trillion in 2016 from Bt2.57 trillion in 2015, an increase of at least Bt300 billion, to support the government's investments, which will definitely increase in the years to come," he said.

"The reform of the tax structure would allow the government to have more income in 2015 and 2016. I expect the income from tax in 2016 to increase by 12-13 per cent after the reform process is complete. Meanwhile, the government budget deficit in 2016 should be the same as in 2015, but in my mind, it could increase to Bt300 billion," he added.

Sommai explained that an expansionary policy for the government's budget is necessary as most of the outflows leading to the budget deficit in 2015 are interest payments for the Financial Institutions Development Fund and the debt from the rice-pledging scheme and were not for government investments. He said the deficit would need to be widened to cover the increase in the proposed investments.

"If we are going to invest for the future, we have to dare to increase our loan budget and we still have a good enough credit reputation to borrow more," he said.

He added that to support the budget expansion, we would have to increase taxes also from the introduction of land and construction tax and VAT, which would be done by the end of 2015 fiscal year.

Pichit Akrathit, chairman and chief executive officer of Asia Wealth, said the government should delay the VAT rate increase to beyond 2015 to stimulate the economy next year, as the VAT increase could slow down domestic consumption, which is still needed for economic expansion next year.

Source: http://www.nationmultimedia.com/business/VAT-hike-will-give-more-room-for-budget-deficit-So-30248979.html


-- The Nation 2014-12-02

[Suriya4]

Please take 10 percent from us. We understand it is in the interest of the country to make thai people happy.

[Dogmatix]

They will do it because it is the easiest way to increase tax revenue significantly, while inheritance is little more than a political gimmick in net revenue terms and land tax could easily be shelved or delayed. If Japan's example is anything to go by, the economy will undershoot by more than it was going to otherwise, due to the VAT hike, causing a shortfall in tax revenues, and at the end of 2016 It will be hiked to its statutory rate of 10%, repeating the process.

Increasing VAT puts a disprortionate burden on the poor who incur VAT on their entire incomes as they have to spend all they get, while the wealthy have the option to save, invest or spend money overseas. It would be better to delay infrastructure projects, if the government can't afford them, since they will provide little immediate benefit across the board, and concentrate on other ways to help the economy recover. Lifting martial law would help tourism recover, while a CAT hike would damage it further. A serious drive to root out corruption from every element of government spending would mean they have more to spend without taking food and clothing from the poor. With household debt at 83% of GDP private consumption is already fragile enough and global interest rates are set to rise which will force the BOT. To follow putting further pressure on indebted households and the property sector which has been surprisingly resilient.

Mismanaging the economy could have serious consequences for stability which is only just recovering from political strife.

Edited December 1, 2014 by Dogmatix

[Ricardo]

"The increase of VAT by 1 per cent, however, should be enough, as that is the minimum rate of increase," Finance Minister Sommai Phasee said."

"minimum rate of increase"

Is there some natural-law, of which I was previously unaware, which makes an increase from 7% to7.5% impossible ?

Or does the FM believe that Thais would have difficulty coping with half-percents ?

[clockman]

So few rich people pay tax.! Get the tax sorted out. Then there would be enough.

[Noi657]

Meh..... Round it up to 8, easier to use the Casio calculator that way!

[ramrod711]

While public debt at 46 per cent of gross domestic product is still relatively low and international reserves are still high, it would mean the government could afford more off-budget borrowing, he said.

This is a really good idea, because governments everywhere have proven that they can handle money responsibly. Governments would never use the peoples money to gain votes or waste the taxpayers funds for idiotic things like high speed rail for people that can't afford to ride.

[chainarong]

<script type='text/javascript'>window.mod_pagespeed_start = Number(new Date());</script>

They will do it because it is the easiest way to increase tax revenue significantly, while inheritance is little more than a political gimmick in net revenue terms and land tax could easily be shelved or delayed. If Japan's example is anything to go by, the economy will undershoot by more than it was going to otherwise, due to the VAT hike, causing a shortfall in tax revenues, and at the end of 2016 It will be hiked to its statutory rate of 10%, repeating the process.

Increasing VAT puts a disprortionate burden on the poor who incur VAT on their entire incomes as they have to spend all they get, while the wealthy have the option to save, invest or spend money overseas. It would be better to delay infrastructure projects, if the government can't afford them, since they will provide little immediate benefit across the board, and concentrate on other ways to help the economy recover. Lifting martial law would help tourism recover, while a CAT hike would damage it further. A serious drive to root out corruption from every element of government spending would mean they have more to spend without taking food and clothing from the poor. With household debt at 83% of GDP private consumption is already fragile enough and global interest rates are set to rise which will force the BOT. To follow putting further pressure on indebted households and the property sector which has been surprisingly resilient.

Mismanaging the economy could have serious consequences for stability which is only just recovering from political strife.

I agree however one line at a time, all this put together would be over the top for most in the Thai administration, if they did they would also know that their dream projects are dead, simply put they are not making enough to service debt.

[alant]

They will do it because it is the easiest way to increase tax revenue significantly, while inheritance is little more than a political gimmick in net revenue terms and land tax could easily be shelved or delayed. If Japan's example is anything to go by, the economy will undershoot by more than it was going to otherwise, due to the VAT hike, causing a shortfall in tax revenues, and at the end of 2016 It will be hiked to its statutory rate of 10%, repeating the process.

Increasing VAT puts a disprortionate burden on the poor who incur VAT on their entire incomes as they have to spend all they get, while the wealthy have the option to save, invest or spend money overseas. It would be better to delay infrastructure projects, if the government can't afford them, since they will provide little immediate benefit across the board, and concentrate on other ways to help the economy recover. Lifting martial law would help tourism recover, while a CAT hike would damage it further. A serious drive to root out corruption from every element of government spending would mean they have more to spend without taking food and clothing from the poor. With household debt at 83% of GDP private consumption is already fragile enough and global interest rates are set to rise which will force the BOT. To follow putting further pressure on indebted households and the property sector which has been surprisingly resilient.

Mismanaging the economy could have serious consequences for stability which is only just recovering from political strife.

A bit of help requested Dogmatix, what is the "statutory rate of 10%" for VAT ie why 10 % and how its it statutory? Many thanks, Al.

[ezzra]

Here is a thought, don't buy a submarine, don't give freebees to the people that means mouthing

and pretty soon they will be for resale in the market, don't finance and stupid and corrupt rice

scheme, don't give away cheap cars, don't keep such inflated 2 million civil workers in the government

that most of them are good for nothing, don't finance a built train that no one can afford and burden

the Thai people for the next 50 years, put all the temples and the monasteries under tight monetary

control and strip them of all those billions of baht, and vast track of land, take away what they don't need to

use and be what they suppose to be, a humble and poor monks, serving the people... and not the other way around you do that and you will not have to raise taxes...

Edited December 2, 2014 by ezzra

[daveAustin]

Tax, tax, tax, debt, debt, debt... moving in the wrong direction, Thailand. I don't mind paying as long as I get a fair return of service and quality on monies spent. Yeah, right! It's all ass-backards here.

[HeijoshinCool]

"The increase of VAT by 1 per cent, however, should be enough, as that is the minimum rate of increase," Finance Minister Sommai Phasee said."

"minimum rate of increase"

Is there some natural-law, of which I was previously unaware, which makes an increase from 7% to7.5% impossible ?

Or does the FM believe that Thais would have difficulty coping with half-percents ?

.

Yes, with good cause.

Have you ever noticed there is no vendor food that is 32 baht? Or 32, 33, or 34?

Nope, too much math there. When prices go up, it's from 30 to 35. And 35 to 40.

Go figure!

[Chang_paarp]

The statutory rate is the rate on the government books, it was discounted some years ago as a stimulus package. Many governments since have talked about increasing the discounted rate of 7% to the book rate of 10%. It would seem that increases can only be in whole % points.

[Chang_paarp]

"The increase of VAT by 1 per cent, however, should be enough, as that is the minimum rate of increase," Finance Minister Sommai Phasee said."

"minimum rate of increase"

Is there some natural-law, of which I was previously unaware, which makes an increase from 7% to7.5% impossible ?

Or does the FM believe that Thais would have difficulty coping with half-percents ?

.

Yes, with good cause.

Have you ever noticed there is no vendor food that is 32 baht? Or 32, 33, or 34?

Nope, too much math there. When prices go up, it's from 30 to 35. And 35 to 40.

Go figure!

That has more to do with the number of coins needed to deal with change than deeper economic theory.

[Dogmatix]

"The increase of VAT by 1 per cent, however, should be enough, as that is the minimum rate of increase," Finance Minister Sommai Phasee said."

"minimum rate of increase"

Is there some natural-law, of which I was previously unaware, which makes an increase from 7% to7.5% impossible ?

Or does the FM believe that Thais would have difficulty coping with half-percents ?

They just want to stick in the thin end of the wedge and hope that nobody notices. The legal rate of VAT is actually 10% as it was introduced at that rate in the late 90s but quickly reduced to 7%. However, the reduction was only made by temporary waivers that have to be renewed every couple of years. It is a foregone conclusion that it will be raised to 10%. They don't even need any legislation to do that - just fail to renew the waiver.

[thesetat2013]

Funny thing is i remember at least 3 articles previously stating public debt is huge at about 150,000 per household. The highest ever. Yet here they say it is low

[webfact]

VAT maybe increased 1-2%

BANGKOK: -- Finance Minister Sommai Phasee indicated that value-added tax (VAT) might be raised by 1-2 percentage points next year to finance the government's 2015' fiscal budget.

He said it has to be increased by at least a percentage point, maybe even two points, but there’ll be further discussion about this.

Sommai’s indication came as the National Council for Peace and Order has earlier approved an extension of the 7% rate for another fiscal year, to Sept 30, 2015, with the aim of smoothing domestic consumption, which has faltered since the second half of last year.

The proposed 1-2% VAT increase will be next on the agenda after the inheritance and land and buildings taxes have won National Legislative Assembly approval.

Mr Sommai said revenue collection was expected to meet the target of 2.325 trillion baht for this fiscal year started Oct 1, while revenue collection in 2016 was projected to be even higher due to tax reform measures, particularly the land and buildings tax as well as VAT.

Tax revenue collection in 2016 was expected to increase reasonably, and this would contribute to an increase in government spending, which would be higher than this year’s expenditure, he said.

The Finance Ministry will deliberate its fiscal-2016 budget in mid-January, and the size of state expenditure is expected to be 12-13% higher.

Mr Sommai said that the government would use this budget to develop the economy, social security programmes, education and healthcare services.

The fiscal-2016 budget is projected at 2.88 trillion baht, up by some 300 billion baht from the sum of 2.575 trillion baht for the fiscal-2015 budget, he added.

Source: http://englishnews.thaipbs.or.th/vat-maybe-increased-1-2


-- Thai PBS 2014-12-02

[recycler]

"The increase of VAT by 1 per cent, however, should be enough, as that is the minimum rate of increase," Finance Minister Sommai Phasee said."

"minimum rate of increase"

Is there some natural-law, of which I was previously unaware, which makes an increase from 7% to7.5% impossible ?

Or does the FM believe that Thais would have difficulty coping with half-percents ?

I know people with a degree in accounting that I have to explain about how to calculate percentages and the average shop vendor needs a calculator to give change for 700 Baht if I pay with a 1000 note. So yes half percents would be a huge problem...

[Anthony5]

There is only 1 victim in a VAT increase, and that is Joe Average who has no means to recover VAT with his yearly tax declaration. So far for bringing back happiness to the Thai people.

[gchurch259]

How about cutting government spending !! US has 370 million people and only 535 Representative/Senators, where as Thailand has close to 70 million people and 500 members of legislature. Get rid of half of them and those expensive uniforms they wear to all the affairs. It seems no government knows how to cut spending, US in particular, where I once was very proud to be born. Now only moderately proud.

There are too many Colonels and Generals in the Police, never heard of such a thing. Do not know how big the standing Army is, but they can not get rid of the problem in the Southern Provinces.

Enough for now before I get a knock at the door !!

Edited December 2, 2014 by gchurch259

[wabothai]

No need for the raise when most of the funds from the corruption scandals are confiscated.

[wabothai]

No need for the raise when most of the funds from the corruption scandals are confiscated.

[Thai at Heart]

They will do it because it is the easiest way to increase tax revenue significantly, while inheritance is little more than a political gimmick in net revenue terms and land tax could easily be shelved or delayed. If Japan's example is anything to go by, the economy will undershoot by more than it was going to otherwise, due to the VAT hike, causing a shortfall in tax revenues, and at the end of 2016 It will be hiked to its statutory rate of 10%, repeating the process.

Increasing VAT puts a disprortionate burden on the poor who incur VAT on their entire incomes as they have to spend all they get, while the wealthy have the option to save, invest or spend money overseas. It would be better to delay infrastructure projects, if the government can't afford them, since they will provide little immediate benefit across the board, and concentrate on other ways to help the economy recover. Lifting martial law would help tourism recover, while a CAT hike would damage it further. A serious drive to root out corruption from every element of government spending would mean they have more to spend without taking food and clothing from the poor. With household debt at 83% of GDP private consumption is already fragile enough and global interest rates are set to rise which will force the BOT. To follow putting further pressure on indebted households and the property sector which has been surprisingly resilient.

Mismanaging the economy could have serious consequences for stability which is only just recovering from political strife.

This understanding of the poor being effected disproprortionately is mitigated somewhat in Thailand because there are many vat exempt businesses providing essentials. I.e. wet markets etc

[rickirs]

Regardless of how many problems there are to Minister Sommai's statements of budgetary policies, expectations, and "personal opinions" (when Gen. Prayuth disagrees with his ministers), there continues to be one glaring point of reality - the NCPO alone decides the economic policy of the nation.

"... National Council for Peace and Order has earlier approved an extension of the 7% rate for another fiscal year ..."

For all of NCPO's talk of invigorating the Thai economy back to pre-interim PTP government levels by the end of 2015 with government stimulus spending, thus far it has been very conservative in actually accomplishing spending in a material way that would create meaningful GDP growth.

But the NCPO itself may be divided on a uniform economic policy for the nation. Somkid Jatusripitak, adviser to the NCPO, said that “gross domestic product should grow on its fundamentals, not from an injection of capital” (aka stimulus spending). Contrast this to Gen. Prayuth’s statements that “the focus would be placed on economic stimulus packages, especially those designed to assist at grass root level or low-income earners” and “the NCPO would try to keep the baht from appreciating for the benefit of the Thai export sector.”

Prayuth has said, “If I say [something], I have to take responsibility.” That may not be very comforting to the nation that has no self determination for its leadership..

[maidee]

why not start to make SAVINGS instead of making more debts...

[elgordo38]

They will do it because it is the easiest way to increase tax revenue significantly, while inheritance is little more than a political gimmick in net revenue terms and land tax could easily be shelved or delayed. If Japan's example is anything to go by, the economy will undershoot by more than it was going to otherwise, due to the VAT hike, causing a shortfall in tax revenues, and at the end of 2016 It will be hiked to its statutory rate of 10%, repeating the process.

Increasing VAT puts a disprortionate burden on the poor who incur VAT on their entire incomes as they have to spend all they get, while the wealthy have the option to save, invest or spend money overseas. It would be better to delay infrastructure projects, if the government can't afford them, since they will provide little immediate benefit across the board, and concentrate on other ways to help the economy recover. Lifting martial law would help tourism recover, while a CAT hike would damage it further. A serious drive to root out corruption from every element of government spending would mean they have more to spend without taking food and clothing from the poor. With household debt at 83% of GDP private consumption is already fragile enough and global interest rates are set to rise which will force the BOT. To follow putting further pressure on indebted households and the property sector which has been surprisingly resilient.

Mismanaging the economy could have serious consequences for stability which is only just recovering from political strife.

Dead right. The rich get the gold mine the poor get the shaft.

[Time Traveller]

Since this dictator has taken over, all we've heard about is all the new taxes - increased income taxes, new inheritance and gift taxes, excise duty now on non-alcoholic drinks and now VAT increase.

Just how many new submarines and fighter jets do these military chimps need? Where is all this new tax money going to be spent? Are they trying to destroy the economy?

Edited December 2, 2014 by Time Traveller

[Thai at Heart]

Since this dictator has taken over, all we've heard about is all the new taxes - increased income taxes, new inheritance and gift taxes, excise duty now on non-alcoholic drinks and now VAT increase.

Just how many new submarines and fighter jets do these military chimps need? Where is all this new tax money going to be spent? Are they trying to destroy the economy?

If Thais paid all the taxes they were meant to, the govt would have so much money it wouldn't know what to do.

There is a deficit of 1% with evasion of a magnitudr many times that.

[alant]

The statutory rate is the rate on the government books, it was discounted some years ago as a stimulus package. Many governments since have talked about increasing the discounted rate of 7% to the book rate of 10%. It would seem that increases can only be in whole % points.

thank you for explaining.