Thailand: Proposed reduction of personal income tax rates moves forward

Roberto Scaramuzza - Linkedin profile

Roberto Scaramuzza – Linkedin profile

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The proposed income tax reduction may be enacted by the year-end with retroactive effect for all of 2013.

In December of last year, the government proposed a change in the income tax rates paid by individuals in Thailand. The proposed reductions were to be effective for the 2013 tax year but until now, as no bill has been submitted to Parliament, the actual legislative process appears to have stalled. Failure to enact the proposed reductions would leave taxpayers confused as to what rates their income would be subjected. It now appears that there is some movement on the legislative front and the government may be in a position to finalise the proposed draft legislation for Cabinet review by the year-end. In addition, it appears as though the proposal for new rates will be retroactive to January 1, 2013, and so some taxpayers may get a refund if their withholding has been based to date on higher rates, as is the case with some.

New brackets and new rates

The Thai system of personal income taxation, like most systems, is based on a graduated scale of taxation, with those earning lower incomes subject to lower taxation rates. This is often referred to as taxation at “graduated rates”. For example, an individual earning Bt500,000 per year would pay zero tax on the first Bt150,000 of income and then pay taxes at 10 per cent on earning between Bt150,000 up to Bt500,000. This results in a tax of Bt35,000 on the total income of Bt500,000. The taxation rates are higher on higher incomes. Under the current personal income tax scheme, the top percentage is 37 for any income over Bt4 million. Thus, those at the top pay a high percentage of their income in taxes.

Under the proposed revisions, three new tax brackets will be created by adjusting the income subject to certain taxation rates (see inset). A new 5 per cent tax bracket will effectively be a tax cut in the personal income tax rates for those individuals earning Bt150,001-300,000. This will effectively increase the net disposal income for lower income earners. The same can be said for middle-income earners as the creation of a new 15-per-cent bracket will apply to income ranging from Bt500,001 to Bt750,000. The other new bracket is a 25-per-cent rate for those earning Bt1 million to Bt2 million. These new rates should increase net disposable income (the income that people actually have in their pockets to spend).

In addition to the three new rates, the top marginal tax rate on income above Bt4 million will be reduced slightly, down from the current 37 per cent to 35 per cent. Thus, an individual earning more than Bt4 million a year will also see a reduction in taxes owed to the government and have more income to spend. All of these reductions should lead to increased consumption at all levels of income and, thereby, boost the Thai economy in the long run.

Personal Income Tax Thailand

Impact on expats’ taxes

The impact on expatriate workers here in Thailand should be quite minimal as they tend to hold fairly senior positions and are paid salaries that often put them into the highest tax bracket. In addition, as many expatriate employees tend to be on assignment from countries such as the US, they often receive a “top-up” on any extra taxes paid in Thailand beyond their home taxes or a credit for any taxes paid in Thailand against income taxes due in the countries of origin. Thus, their actual disposable incomes may be minimally impacted by the changes. In some cases where the company bears expatriates’ taxes in Thailand, any tax saving in the tax reduction in Thailand would go to the company.

These reforms are the first in over 20 years and are seen as welcome developments. They should serve to increase disposable incomes for taxpayers in Thailand and boost the Thai economy through increased consumption at all levels.

This information is intended as a general guide only. Tax law is complex and professional advice should be taken before acting on the information provided.