The cabinet has delayed approving an increase in value-added tax (VAT) in a bid to allay private sector concerns.
Prime Minister Prayut Chan-o-cha yesterday said the government had not yet reached a decision on the VAT hike and that the tax would be raised only once the economy had improved significantly. CHANAT KATANYU
Prime Minister Prayut Chan-o-cha said Tuesday the government had not yet reached a decision on the VAT hike, saying the tax would be raised only when the economy was in better shape.
Finance Minister Sommai Phasee on Monday said VAT might be raised by at least one percentage point next year to finance the government's planned loosening of fiscal policy by increasing the fiscal-2015 budget by 12-13% from this year's.
His remarks sparked fears among the private sector, with most business people saying the hike would have an adverse effect on consumers' still-weak purchasing power.
"The government should take into account economic conditions. The hike will be no cause for concern if the economy grows by more than 4% next year," said Supant Mongkolsuthree, chairman of the Federation of Thai Industries after Tuesday's meeting of the Joint Standing Committee on Commerce, Industry and Banking (JSCCIB), a group of some of the most powerful businessmen in the country.
The JSCCIB cut its economic growth forecast for next year to only 3.5% to 4% from the previous projection of 4% to 4.5%, citing delays in the government's budget disbursement and the slow pace of the global economic recovery.
Thai Bankers' Association chairman Boontuck Wangcharoen agreed, saying the VAT hike should be based largely on the economic environment while urging the government to think twice about the proposed increase.
He suggested the government also cut income tax if VAT needed to be raised.
"Given the current economic conditions, most people remain saddled with high household debt," Mr Boontuck said.
"The VAT hike will have an adverse effect on consumers' purchasing power."
Somkiat Anurat, vice-chairman of the Thai Chamber of Commerce, said businesses disagreed with the planned VAT hike, as it would further dampen people's purchasing power.
"It's imperative that the government thoroughly consider the economy's direction and consider the raise only once the economy is in good shape," he said.
Former finance minister Korn Chatikavanij said the government should provide the public with more clarity on why it must increase VAT.
"While the government wants to raise VAT by one percentage point, there has been no hint that it would reconsider corporate income tax [which was lowered to 20% from 30% ], of which there are far fewer beneficiaries," he said.
"The government has incurred revenue losses of 150 billion baht from lowering corporate income tax, while the social benefits stemming from this move remain unclear."
Each percentage-point increase in VAT will add 60-70 billion baht to government tax revenue, according to Mr Korn.
But he said that amount was considered insignificant in terms of combined tax revenue.
Other tax reform measures are not expected to generate massive revenue for the government, Mr Korn said.
He said the inheritance and gift taxes, for instance, would depend on the annual mortality rate, while the land and buildings tax would generate more revenue for provincial administrations rather than the central administrative body.
"I would like to ask whether it's necessary for the government to increase its revenue, as the current fiscal deficit is about 250 billion baht, which is less than 2% of GDP, while the government can still shoulder the public debt burden," Mr Korn said.
He agreed with the Finance Ministry's idea of a wider fiscal deficit for the fiscal-2016 budget but said this should be incurred as a result of investments to develop competitiveness in the long run.
Meanwhile, the government should focus on implementing reforms rather than emphasising short-term stimulus measures, Mr Korn said.
"What I would like to see from a government with 'special' administrative power is implementing reform measures," he said.
"This is difficult to do even during times of an elected government."
Besides taking a serious stab at reforming state-owned enterprises, the State Enterprises Policy Commission or "superboard" should have real power to oversee enterprises' procurement process, their investment plans and corporate management efficiency, Mr Korn added.