Benjamin Franklin, one of the founding fathers of the US, once said there were only two things certain in life: death and taxes. Normally I would agree with such an analogy, but after hearing so many debates about the impending inheritance tax, I think a more appropriate phrase for Thailand is "no taxation without representation". After our latest coup and lack of elections for five months now, I am beginning to understand how the American colonists must have felt during the 1760s under British rule, when they were taxed under the Sugar Act of 1764 even though they had no legislators who could vote in Parliament.
I can see where both sides are coming from in this inheritance tax debate. From the junta's point of view, they are desperate to win brownie points from the public to cover up their illegitimate rise to power. Taxing the rich is seen as the easiest option, all in the name of closing the wealth gap between rich and poor. It is ironic that many of my whistle-blowing friends who pushed so hard to expel the Yingluck Shinawatra government are now the ones most affected by this proposed inheritance tax, pleading they did not sign up for this.
Class warfare rhetoric has sadly overwhelmed the lessons from abroad about the ineffectiveness of inheritance and estate taxes. Short-term expediency has replaced tax policies that promote long-term growth. Recent research by the Thailand Future Foundation found only 13 out of 45 countries studied had an inheritance tax. Twelve countries that used to collect such taxes have abolished them including Singapore, Australia, Norway and Canada. Inheritance tax in Organisation for Economic Cooperation and Development countries made up only 0.1% of government revenue in 2011, and this low yield has led many countries to give up on these taxes.
Hopefully, our policymakers will reconsider the inheritance tax policy in the coming months. They should reverse course or at the very least cut the proposed tax rate of 10% on all assets above the 50-million-baht threshold, which puts Thailand in the same league as Japan and the Netherlands even though these countries enjoy seven to eight times higher per capita income than we do.
Another reason to cut the tax is more practical than theoretical — international tax competition. The top bracket for personal income tax in Thailand is already quite high at 35% compared with 20% in Singapore and 15% in Hong Kong. If the government goes ahead and tries to tax people on their inheritance windfall at the same high rates as their income, the tax base will shrink dramatically and little revenue be raised.
A general rule for efficient taxation is for governments to tread lightly on mobile tax bases, and inheritance and capital gains are some of the most mobile. Capital is highly mobile across borders, which has prompted nearly every country in recent decades to cut tax rates on corporations, wealth, estates, dividends and capital gains as well as withholding taxes on cross-border investment flows.
Don't get me wrong. I am a patriot, and I am willing to pay my fair share of taxes. But when I see my hard-earned tax money being wasted on 150,000-baht microphone systems at Government House and 1,000-baht-a-rai freebies for rice farmers for doing no work, I feel like emigrating to Singapore.
If the junta is really serious about closing the wealth gap and boosting innovation, spurring entrepreneurship and helping Thailand to regain its competitive edge, the best course of action would be for the government to do nothing and let the "invisible hand" do all the work. Coined by classical economist Adam Smith in his book The Wealth of Nations, the "invisible hand" refers to the foundation for laissez-faire economic philosophy, which argues that government intervention in the marketplace is unnecessary. Instead, changes in the demand for resources automatically result in price adjustments without the need for regulation.
Teera Phutrakul, CFP, is a certified financial planner and current chairman of the Thai Financial Planners Association.