The cabinet Tuesday approved an overhaul of the personal income tax structure amid criticism that the changes benefit mainly the rich.
The change will slash the highest personal income tax rate to 35 per cent, down from 37 per cent, effective on 2013 tax returns filed in 2014.
The restructuring will cut the government's revenue in the 2013 fiscal year by 25 billion baht, the Finance Ministry said.
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Earners in the top tax bracket comprise the main portion of personal income tax collection, a ministry source said.
Personal income tax rates under the new structure will be divided into seven brackets _ two more than in the previous tax regime.
Those with a yearly income of 150,000 baht or less will be exempt from income tax, which is unchanged from the current system.
Those in the second-lowest bracket who earn between 150,000 baht and 300,000 baht will have their tax rate drop to 5% from 10%.
The tax changes are aimed at ensuring more fairness to taxpayers, said Thosaporn Serirak, a government spokesman.
Some people, however, criticised the changes on social media, saying the overhaul mainly benefits rich people who will be paying less tax.
"Many countries are moving to narrow the income gap between the poor and the rich by increasing taxes for the rich," tweeted Korbsak Sabhavasu, the former Democrat deputy leader. "Thailand has just cut taxes for the rich."
Federation of Thai Industries chairman Payungsak Chartsutthipol applauded the changes.
"This will strengthen the country's income distribution, allowing low-income earners to pay lower taxes," he said.
"If they pay less tax, they'll have more to spend, and this will stimulate the economy," he said, suggesting the government will receive more revenue in the form of value-added tax.
The income tax overhaul will also allow married couples to file their tax returns separately, a move that will save households money, but will trim around 7 billion baht from government revenues.
The cabinet also approved a new excise tax structure for cars, and agreed to extend the diesel excise tax reduction of 0.005 baht per litre until the end of January next year. The current diesel excise tax reduction expires on Dec 31.