A study estimated a two-tier VAT system with a higher rate for luxury items could generate additional revenue for the country. Sarot Meksophawan-nakul
The Finance Ministry is considering the introduction of a two-tier value-added tax (VAT) rate that could generate additional revenue of more than 100 billion baht, says a ministry source who requested anonymity.
The source said the Fiscal Policy Office studied the two-tier VAT system a long time ago. The system uses the current VAT rate of 7% for general goods and services, with a higher rate for luxury items.
The study estimated this system could generate additional revenue of more than 100 billion baht for the country.
The source said some countries use a two-tier VAT rate.
A two-tier rate should not have a major impact on most Thais as they typically consume general goods and services, which would be charged the current VAT rate, the source said. Only certain items such as liquor or cigarettes would be subject to the higher rate.
Thailand introduced the VAT system for domestic products and imported goods in 1992, with the current ceiling at 10%.
The Finance Ministry has proposed raising the VAT from time to time, but an unfavourable economic climate or political concerns about the effect on the general public always doomed such proposals.
Thailand has changed its tax structure many times, with a common theme of reducing rates, such as the top personal income tax bracket falling from 37% to 35%, while the corporate income tax rate dipped from 30% to the current maximum of 20%.
The ministry source said because the government shouldered higher expenditure during the Covid-19 pandemic, a tax increase during this difficult economic time is unlikely.
Over the past two years the government introduced two emergency loan decrees to allow it to borrow 1.5 trillion baht to alleviate the effects of the pandemic on the economy. As a result of the borrowing, the government raised the ceiling of the public debt-to-GDP ratio to 70%, up from 60%, to accommodate the growing debt burden.
The public debt-to-GDP ratio stood at 60.8% in July this year.
After the Yingluck Shinawatra government was toppled in 2014, the military junta set directions for tax reform, including that it should not burden low-income earners, while ensuring fair treatment, plugging tax loopholes and improving the government’s revenue.
However, new taxes launched under the current government have not generated significant additional revenue, given their many exemptions.
In September last year the country introduced the e-service tax law, requiring overseas business operators providing online services in Thailand to register for 7% VAT payments if their annual income exceeded 1.8 million baht.
The Revenue Department has collected almost 6 billion baht from the e-service tax during the first 10 months of fiscal 2022, surpassing the target by 951 million baht.
In the same period, the department collected total revenue of 1.67 trillion baht, of which 766 billion came from VAT.
During the period, VAT revenue exceeded its target by 18.5%, and was 17.3% higher than during the same period the previous fiscal year.