The debate over a potential value-added tax (VAT) hike has reignited following remarks by Finance Minister Pichai Chunhavajira at a seminar, where he mentioned ongoing studies on tax reform, including VAT adjustments.
The broader discussion on tax reform -- potentially increasing VAT while reducing corporate and personal income taxes to 15% -- raises questions about Thailand's fiscal strategy.
Although the minister did not explicitly state the government has plans to raise VAT from its current rate of 7% to 15%, his comments highlighting that Thailand's VAT is relatively low compared to the 15–20% in many countries sparked widespread public criticism. Prime Minister Paetongtarn Shinawatra responded to curb the public outcry, reassuring the public via social media that her government would not raise VAT to 15%.
While reducing corporate and personal income taxes could stimulate economic activity and consumption, the notion of raising VAT to compensate remains controversial. Critics argue such a move disproportionately affects low-income groups, who would bear a heavier burden relative to their income, while wealthier individuals and corporations benefit from tax reductions. This perception has fuelled criticism that a VAT hike equates to "the poor paying to save the rich".
Thailand's VAT rate, introduced at 10% in 1992 and reduced to 7% in 1997 during an economic downturn, is indeed among the lowest in the world. Over the past two decades, Thailand's political landscape, dominated by populist policies requiring substantial funding, has compounded this issue.
Successive administrations have introduced programmes targeting grassroots voters without clearly identifying funding sources. The result is a persistent shortfall in government revenue, even as demands for expanded social welfare programmes and public infrastructure grow. Successive governments have considered increasing VAT to bolster state coffers but have faced fierce opposition. This resistance stems from a lack of public trust in how additional revenue will be used and concerns about the fairness of taxation.
The question is not whether Thailand needs to increase VAT -- it does. State revenues are insufficient to fund essential social services, let alone support infrastructure development, human capital investment, or national competitiveness. However, any VAT increase must come with clarity and accountability.
Research by the Thailand Development Research Institute (TDRI) challenges the criticism that a VAT hike disproportionately burdens low-income people. In principle, VAT is a fair tax applied universally. Funds collected from a VAT increase could strengthen social welfare, improve public services, and support national development.
Nevertheless, public resistance to a VAT hike often stems from scepticism about the government's intentions. Many fear additional revenue will finance political campaign promises rather than benefit the broader public.
The government must outline a clear and transparent roadmap for making use of the increased revenue. For instance, promising to allocate funds to universal healthcare improvements or other initiatives that benefit the majority would reassure the public that the additional tax burden serves the greater good. Raising VAT is a politically sensitive issue that requires careful implementation. A phased approach, with incremental increases over several years, would allow businesses and households time to adapt.