Less taxing times on the cards

Planned reductions in corporate and personal income tax are expected to cost the government upwards of 200 billion baht in tax revenue each year under a strategy aimed at encouraging investment, increasing disposable income and strengthening domestic demand.

Shoppers hunt for bargains in a Bangkok store. The current VAT rate, at 7%, ranks among the lowest in the world, and the cabinet will not have to consider whether to extend existing rates or allow VAT to increase to 10% as stipulated by law until 2014.

The long-standing corporate tax rate of 30% was cut to 23% in 2012 and will be cut again in 2013 to 20%. Overall, the Revenue Department estimates the impact of the tax reduction at 150 billion baht, based on returns for fiscal 2011.

The personal income tax changes will take effect in 2013 for taxpayers submitting their filings in the first quarter of 2014. The changes, which include the addition of new rate tiers for middle-income earners, are expected to cost the government about 25 billion baht per year in lost revenue.

A related change that will allow married couples to file separate tax returns rather than consolidate income with the husband could cost another 7 billion baht in tax income.

For policymakers, the aim of the tax cuts is to boost the economy by increasing disposable income and hopefully creating higher consumption and private investment.

If taxpayers spend their added returns, businesses will presumably grow, which in turn will help to mitigate the impact on overall tax revenues as value-added tax (VAT) and corporate tax rise through increased activity across the economy.

Under this strategy, Finance Minister Kittiratt Na-Ranong has been silent about VAT and whether rates will rise. The current VAT rate, at 7%, ranks among the lowest in the world, and the cabinet will not have to consider whether to extend existing rates or allow VAT to increase to 10% as stipulated by law until 2014.

In any case, it may be premature to assess the impact of the tax cuts on the overall economy.

In fiscal 2012, when the corporate tax rate was first cut to 23% from 30%, revenue totalled 544 billion baht, a decline of 5.2% from the previous fiscal year and 9.2% below target.

The decline, however, cannot be attributed to the rate cut alone, considering that the overall economy grew just 0.1% in 2011 due to the global economic crisis and the impact of the widespread floods in Bangkok and central Thailand late in the year.

And VAT revenue, a proxy for the overall economy, totalled 659 billion baht in fiscal 2012, up by 14% from the previous year. VAT now generates the most revenue of all taxes for the Revenue Department.

Policymakers also argue tax strategy cannot be viewed solely from the perspective of maximising government revenue but also must take into account the country's competitiveness, attractiveness to foreign investment and even the impact on the tax base and incentives to evade taxes.

Department director-general Satit Rungkasiri is hopeful that new technology can help to improve tax-collection efficiency.

The department will spend 2 billion baht on database and IT improvements as part of a strategy aimed at nearly doubling the department's annual revenues to 3 trillion baht within two years from 1.16 trillion now.

Authorities have also set a target of bringing 200,000 taxpayers into the system this fiscal year.

Almostt 10 million taxpayers are registered with the Revenue Department _ 9 million individual taxpayers, 360,000 VAT payers and 350,000 corporate taxpayers.

About the author

columnist
Writer: Wichit Chantanusornsiri
Position: Business Reporter