The cabinet on Tuesday decided to keep value-added tax (VAT) at 7% for another year from Sept 30.
"The government is looking for solutions that will not lead to a tax increase. I never considered a VAT increase. By law, it should be 10% but a rise is not possible right now. Today the 7% rate was continued because our country is not ready. Income is still too low," Prime Minister Prayut Chan-o-cha said after the cabinet meeting.
The Finance Ministry said the retained 7% rate was aimed at maintaining people's purchasing power, curbing the cost of living, building confidence in the private sector and creating a positive atmosphere for investment.
VAT is charged on local sales of products and services and imports.
VAT was introduced in Thailand in 1992 at a rate of 10% but was slashed to 7% after businesses said the high rate cut into people's buying power. It has stood at that rate since.
The Finance Ministry has brushed aside the National Legislative Assembly's proposal to raise VAT to 8%, saying it would be inappropriate in the current economic climate.
The NLA had proposed increasing VAT by one percentage point, saying it would boost government revenue by up to 70 billion baht a year.
The Finance Ministry expects the e-tax system to stem tax evasion and raise revenue collection by at least 100 billion baht a year when it is fully adopted, making it unnecessary to raise VAT.