The Thai government is making adjustments to its tax system, and may eventually require taxi drivers and food merchants to start paying VAT taxes. Recently the corporate tax rate was cut by 3 percent, and the government wants to raise the VAT tax rate from 7 to 8 percent.
This year the Thai government is estimated to lose about 100 billion baht in reduced tax revenue, after lowering the corporate income tax rate from 23 percent to 20 percent.
However, government officials said the difference in lost tax revenue can be made up in other areas, such as increasing the VAT tax rate from 7 percent to 8 percent. But because of public opposition, there are no immediate plans to implement a VAT tax increase.
The difference in lost revenue can also be partly made up by overhauling the tax structure to include people that are currently not paying taxes on income, such as taxi drivers and food vendors, said a government spokesman.
Even though the business tax rate was lowered to 20 percent, Mr. Satit Rankasiri, the director general of Customs department, said that he was sure his department will collect their targeted tax revenues for this year.
As for the Value Added Tax (VAT), the personal income tax was still in the normal range, even though the new tax structure had reduced the maximum tax rate for individuals from 37 percent to 35 percent, he said.
The fiscal code amendment proposition to the parliament would apply to the taxable fiscal year of 2013, which would be collected from taxpayers filing in early 2014.
The changes would affect husbands and wives filing separately, and because of the income distribution, would result in a lower rate of tax paying, Mr. Satit said.
“The department can still collect 25 percent more tax than the goal, but what is of concern is that the juristic person (business) filing in the middle of this year would pay reduced taxes from 23 percent to 20 percent,” Mr. Satit said.
“I had insisted to the authorities to follow the revenue and the purchasing and selling tax filing of the last year to be compared.”
Mr. Satit added that the juristic person tax reduction resulted in the ability of the government to expand 18% of its tax base, and make small businesses more accurate in accounting.
Mr. Satit said that the department was also accelerating the tax base expansion to close loopholes for tax evasion, and bring other people into the formal tax collection system. Such people who were making enough income to pay taxes, but have not been required to do so include taxi drivers and food merchants.
The IT system has developed the structure to bring the new taxpayers into the tax system, but it might not expand much more than the current tax base of people currently paying taxes, Mr. Satit said.
For now, the government will not raise the VAT tax rate, although an increase is inevitable in the future, said Mr. Satit said, because the current 7% is a very low rate of taxation.
Only two countries in the world have a lower VAT tax rate than Thailand.
One of them, Japan, in April filed and passed in the parliament an increase of their VAT rate from 5 to 8 percent. Japan’s VAT tax rate would increase further, to 10% at the end of the year, he said.
Taiwan is the other country with a lower VAT tax rate than Thailand.
“We do not have the policy to increase the VAT tax from the government, so we wouldn’t do it now,” Mr. Satit said.
Mr. Rangsan Seeworasart, the vice general secretary of the Finance Ministry, said that the 20 percent corporate tax rate would result in tax collections of 2,000 billion baht. However, the overall tax revenue from businesses was still low when compared to other countries, so Thailand needs to reform its tax structure.
All three departments collected and kept data and coordinated with the Finance Ministry for a study to find ways to help low-income people who did not have money enough to pay taxes, but still had to be registered.
“Tax reduction must be considered when making changes about collecting income to develop the country as well, so if there is a reduction on tax, another tax would be increased to replace the lost income,” Mr. Rangsan said.
“If the VAT is increased by only 1 percent, there would be added revenue of 84 billion baht, and it would affect the GDP by just 0.015%, and create just 0.61 % inflation,” he said.
Mr. Rangsan pointed out that food sellers have not been previously subject to VAT taxes, which will be a consideration in the government’s plans to overhaul the tax system.