Even though Finance Minister Pichai Chunhavajira has decided not to impose the value-added tax (VAT) on businesses earning less than 1.8 million baht annually to increase state revenue and reduce the budget deficit, the business community and especially small and medium-sized enterprises (SMEs) are concerned that any expansion of VAT would exacerbate their struggles.
These businesses already face significant challenges, including a sluggish economy, intense competition from imported goods, and several untaxed products sold at lower prices, said Sangchai Theerakulvanich, strategy chairperson of the Federation of Thai SMEs.
"Any efforts to draw more SMEs into the VAT system should not involve introducing another VAT category," he said.
"The idea of imposing 1% VAT on businesses earning 1.5 million baht per year would only increase pressure on SMEs, which are already struggling with the economic downturn, competition from foreign imports, and untaxed goods sold at low prices."
Mr Sangchai suggested that instead of adding pressure, the government should incentivise SMEs to enter the VAT system. For instance, SMEs that register for VAT could receive government support for shop improvements or investment in software systems.
He said the Revenue Department should raise the income threshold for businesses required to enter the VAT system to more than 1.8 million baht per year, as this level has remained unchanged for decades.
"The current requirement for businesses with annual revenue of 1.8 million baht or more to register for VAT has been in place for a long time. However, the economic landscape has evolved over the years," said Mr Sangchai.
"The Revenue Department should raise this threshold to better align with economic conditions."
He said for normal business transactions, purchase and sales taxes are already embedded in products.
However, some retailers buying from wholesalers may choose to avoid the VAT system to receive lower prices by not issuing purchase or sales tax invoices, resulting in lost revenue for the state.
To attract SMEs to the 7% VAT system, the government should consider allocating 3.5% of the collected VAT revenue to fund SME development, said Mr Sangchai.
Alternatively, he said the state could incentivise SMEs by allowing them to pay only VAT for three years after entering the system, exempting them from other types of income tax during that period to give them time to adjust.
However, implementing these measures would require enacting a tax amnesty law for business operators to ensure they are not subject to retrospective tax audits by the Revenue Department, said Mr Sangchai.
EFFECT ON RESTAURANT SALES
The Restaurant Association also expressed concern over the timing of a new VAT collection proposal for businesses earning less than 1.8 million baht per year, urging the government to delay the plan.
"Thailand faces a weak economy and subdued consumer spending. The new VAT scheme should be postponed to avoid worsening the situation," said Chanon Koetcharoen, president of the association.
He said while many restaurants are willing to pay VAT, they lack the guidance necessary for proper implementation.
Mr Chanon called on the government to educate business operators and assist them in complying with the system.
He estimated about 60% of restaurants in Thailand are registered in the VAT system.
Mr Chanon said customers generally react negatively when VAT charges appear on receipts from local or street food vendors, which could result in a drop in sales. However, customers are more accepting of VAT charges at chain or upscale restaurants.
If the government proceeds with the VAT proposal, it should introduce supportive measures such as stimulus packages for the restaurant industry, he said. These packages could include travel co-payment schemes or tax deductions for spending at VAT-registered restaurants.
Mr Chanon said average spending per restaurant bill dipped this quarter, as Thai consumers become more cautious due to economic uncertainty.
He said Thai diners are ordering fewer dishes, skipping desserts and reducing drink orders.
May typically marks the beginning of the tourism low season, but this year the number of foreign tourists dining out, especially Chinese visitors, has fallen more sharply than usual, said Mr Chanon.
Since January, restaurant sales are estimated to have declined by 20% year-on-year, he said.
In addition to reduced consumer spending, the restaurant industry is struggling with soaring raw material prices, rising labour costs, and increased energy prices, said Mr Chanon.
To support the industry during these challenging times, he called on the government to help control the prices of essential raw materials such as pork, vegetable oil, cooking gas and petrol.
Mr Chanon also urged the government to address the high gross profit rates charged by food delivery platforms, which take 28–32% from vendors.
Last year, the cabinet approved an extension of tax reduction measures for pubs, bars, nightclubs and cocktail lounges, cutting VAT from 10% to 5% to support tourism, expiring on Dec 31, 2025.
He said the government should temporarily exempt entertainment venues from excise tax during this period.