Govt ponders tax reform plan to counter rising budget deficit
Reforms could include bringing the underground economy into the system and pushing forward with negative income tax
Thailand has faced a budget deficit for more than 20 years and with no turnaround in sight, the government is urgently seeking additional revenue sources.
Prime Minister Paetongtarn Shinawatra recently told the parliament that the government plans to generate new income by bringing the informal economy and underground economy, which are estimated to account for over 50% of GDP, into the tax system.
Laws will also be adapted to align with current conditions and the feasibility of tax reform will be explored including the implementation of a negative income tax system.
At the same time, the government aims to create new revenue streams by attracting new tourism sectors, including entertainment complexes.
A source from the Government House indicated that the government's revenue-generating strategy is focused on finding funding to support the rising costs of social welfare.
If new revenue sources are secured, they will be used to replace the budget with clear legal provisions being established to ensure that income from underground businesses or entertainment complexes is allocated to social welfare spending.
In its report on social budgeting, the National Economic and Social Development Council (NESDC) noted that government spending on social welfare in 2021 amounted to 1.16 trillion baht, or 7.15% of GDP.
Most of the revenue for social budgeting comes from government contributions, and there is a growing imbalance between public revenue and expenditures, necessitating the prioritisation of budget spending.
Furthermore, Thailand’s social welfare spending, particularly cash benefits, has increased annually, especially after the introduction of the State Welfare Card in 2018. The social welfare budget, which was 17 billion baht in 2017, jumped to 132.9 billion baht in 2021. Between 2012 and 2019, government spending on social welfare grew by an average of 7.1% annually, with a continuing upward trend.
Suwit Sappavitthayasiri, assistant director of the Fiscal Policy Research Institute (FPRI), pointed to two ways the government can control the budget deficit while still allocating funds for welfare programmes: raising taxes or expanding the tax base. However, increasing taxes in Thailand is challenging due to existing constraints.
As a result, the government's policy to bring the informal economy and underground economy, which account for 50% of the total economy, into the formal tax system is crucial for expanding the tax base.
“If the nominal GDP base expands to 20 trillion baht, and an additional 1% tax is collected, it would generate 20 billion baht in revenue. Bringing the informal and underground economy into the tax system could raise an additional 30-50 billion baht in taxes, which is significant,” Suwit explained.
The concept of a negative income tax is seen as a beneficial approach to creating a fair tax system, as it would provide welfare benefits to low-income earners.
To implement this, citizens aged 16 and above would be required to submit income statements, although not all would need to pay taxes. Tax liability would only apply if income exceeds the threshold, and for those below it, the government would provide additional support. Over time, this system could replace the State Welfare Card programme, as it would have more accurate data and allow the government to better target its assistance, leading to more efficient welfare spending.
