World Bank urges government to increase tax revenue and reduce inequality

It also lowered Thailand’s growth forecast for 2023 from its June estimate of 4.3% to 3.6% now, citing declining exports as one factor.

The World Bank provided its analysis and recommendations at the launch of its "Thailand Economic Monitor (TEM) : Fiscal Policy for a Resilient and Equitable Future".

The report describes Thailand's economic performance over the previous six months, and provides a summary of economic and policy developments in Thailand within national, regional, and global contexts.

Fabrizio Zarcone, World Bank country manager for Thailand, said the Thai economy was showing resilience despite global headwinds, pointing to its 4.5% annualised growth in the third quarter. A resurgence of private consumption and strong inflows of tourists are driving growth, Zarcone said.

Although growth is expected to be 3.4% this year and 3.6% in 2023, Thailand faces a number of challenges, the report says. 

These include geopolitical uncertainty, the possibility of prolonged high energy prices, a deeper slowdown in global economic activity, and further deterioration of Thailand's fiscal space.

Thailand must transform its economy to sustain its growth momentum, Zarcone said.

The World Bank has identified three key areas where Thailand can build a more resilient and equitable society in the medium and long term.

First, Thailand's policies should prioritise increasing the potential rate of growth and economic resilience by increasing public investment in areas such as innovation, skills, and digital infrastructure to improve human capital. Furthermore, Thailand must liberalise the services sector and accelerate the process of household debt reduction.

Second, the government needs to ensure adequate fiscal space to meet the additional spending needs associated with an aging society and to provide a buffer for future shocks.

Lastly, focusing on more targeted social assistance spending is a cost-effective way to mitigate the pain associated with the rising risk of a prolonged period of high energy prices and other future shocks. Thailand's low tax revenue collection contributes to a lack of investment in pro-poor spending.

According to World Bank senior economist Nadia Belhaj Hassine Belghith, inequality is one of Thailand's most significant long-term challenges.

Despite Thailand's low poverty rate, income distribution is very uneven, with a large revenue gap between the rich and the poor.

Belhaj proposed raising tax revenue without burdening the poor and eliminating some generous deductions and allowances to improve tax collection while making the system more equitable.

"Stop using the current universal energy subsidy scheme because it creates an unnecessary burden for the government to bear and instead focus on groups in need," the senior economist said.

Kiatipong Ariyapruchya, senior economist for Thailand at the World Bank, added that the current crisis serves as a catalyst for much-needed structural reforms to improve the quality and allocation of spending while also raising structurally low revenue.

"Meeting the spending need while also improving the distributional impacts of fiscal policies and undergoing fiscal consolidation necessitates more efficient and targeted spending as well as additional revenue mobilisation efforts," he said.