Tax is the main or major part of the government income. It is used to compensate the government spending. One could say that “no tax, no development”. So the amount of money collected each year is very important. But, the question is who paid that amount of money?
Following to the 2012 personal income tax payers’ data base, there are 66 million Thais, only 9.79 million people who file the compliant to pay tax while the other 56.21 million haven’t. In addition, the 6.54 of that 9.79 million people has been exempt for paying tax as their net revenue is below 150,000 baht. At this point, Only 3.25 million people left who file the compliant and pay the tax. In other word, the whole country, Thailand, There is only 3.25 of 66 million people who pay tax to the government.
We have noticed some weak points of the tax collecting system—the coverage and the exemption. Since we have several exemptions allow for the calculating the tax, the government have less probability to get tax as they reduce the net revenue of taxpayer. Some exemption, we think, should be canceled like Long Term equity fund. As a rich who doesn’t want to pay tax, he would avoid the tax by buy some equity fund. We understand that it is incentive or to stimulate people to invest. But in this case, not only he could avoid higher tax rate, he would be paid the extra money. It should be the burden of the government.
The second weak point is about coverage of collecting tax. Most of Thais won’t pay tax if the government not calls them to pay. (Avoid tax as the revenue department doesn’t know the truly and exactly income). At present, the department reaches the target each year; however, it cannot cover all the taxpayer. We suggest the government should emphasize to this problem. Government should expand its agency offices, not to expect that people would come and say I would like to pay tax myself but the government has to provide more comfortable to taxpayer. Since we are trying to restructure to be decentralized, we opinion that it should be good if there are more office in the sub-local area like Tum-Bon or Moo-Ban. The agency may be merged to the local government.
In case of Corporate Income tax, it’s like the personal income tax. Some exemption should be rejected and expand more taxpayer base.
As we are a developing country, we don’t have enough money to run or develop the country. Thing we could do is to depend on the foreign money. There is an agency called Board of Investment (BOI), undertaking about investment form aboard. It could set the exemption of paying tax in order to give incentive the foreigner to invest in Thailand. Some exemption is that foreign company has been exempted to pay tax for about 6-8 year, moreover, if all 8 years, the company run with the deficit account but in the 9th year, which is the year they begin to pay tax, they have profit, they can deduct it first from the entire loss in 8 years. This policy is good in term of more incentive to foreigner but it is pretty bad for the Thais firm, causing the unfairness between domestic and foreign company. The government not only loss its profit from exempting tax, it would also reduce the competitiveness of Thai company, then causing the Thai company gain less profit and less paying tax.
However, over past 3 year, we are talking a lot about restructuring tax rate, both personal and corporate income tax. Comparing our tax rate with the other ASEAN, we have a bit higher than other. Then it’s not surprising that reducing tax rate would be applied. We think it is good and should be supported in order to increase the Thai firms’ competitiveness with other.
Nonetheless, in the long run, the question we should ask and the policymaker should concern is about the government income and financial stability. It’s obviously that the government will gain less income while the expenditure is greater over year.
Although we have reduced our income tax rate, the VAT might be raised. There is an issue about increasing VAT from 7 to 10 percent (actually it is 10 percent according to the laws, depending on government policy). This way could compensate the money losses, but we think that it’s not enough. Comparing to other country, there is only Taiwan who has the VAT rate below than Thailand, 5%. So increasing VAT to 10 percent is not surprising for us, besides, we think it should be increased. (Income tax reduce more income lead to collect more VAT)
However, the income of the whole country is still the problem. We are in the middle income trap and we cannot get out from here, appending with the slump economy. We suggest, although people have more income due to tax reduction, they have less purchasing power. Then, they won’t spend more but save instead, we think.
To sum up, we summarized that tax structure seem to be in a good way for restructuring. Reducing tax rate could alter the competitiveness and more saving. The VAT rate is not too much high even 7 or 10 percent. But government has to concern about its revenue. Perhaps, fix the weaken point—coverage and exemption—may solve the problem, but it take cost too. Thing that government could do now is to efficiency manage the budget. Every coins spend on each policy have to be used worthy or, at least, there is a positive impact to all citizen or the economy. But we suggest that to make a financial stability, we have to look backward to our people. The GDP per capita of Thailand is only 5778.98 USD which calculated as middle-income country. To have a potential and sustainability, we must increase the overall income to the same level, reducing the gap between poor and rich. (Less poormore incomecollecting more taxmore revenue)
Finally, the next restructuring tax system should focus on the aging society. Should we tax elderly? Should we tax more on son and daughter? Etc.
And we suggest that restructuring should proceed gradually and must not in the financial/economy crisis or the retirement-income crisis.