BANGKOK — The Thai Prime Minister has clarified the government’s plans for tax reform and assured the public that there will be no increase in the VAT rate to 15 percent. The current VAT rate of 7 percent has remained unchanged for 32 years and is well below the OECD average of 19 percent.
The VAT system is being widely discussed following a proposal for a comprehensive tax reform by the Ministry of Finance led by Deputy Prime Minister and Minister of Finance Pichai Chunhavajira and Permanent Secretary for Finance Lavaron Sangsnit. The proposed reforms include possible adjustments to VAT rates, which have sparked public debate.
The Ministry of Finance explained that the VAT increase is only one part of a broader tax reform initiative. Other measures include reducing personal and corporate income tax, introducing a capital gains tax, introducing the Negative Income Tax (NIT), tackling the shadow economy and using technology to optimize efficiency and fairness in the tax system.
The Untouchable VAT?
VAT is one of the primary sources of government revenue, levied on goods and services at various stages of production and distribution, both domestically and for imports. Though Thailand’s VAT was originally set at 10 percent in 1992, a Royal Decree effectively reduced it to 7 percent (6.3% VAT + 0.7% local tax). Despite a brief increase in 1997, the Asian financial crisis prompted another reduction to 7 percent, a rate that has persisted to this day as political and public resistance has deterred any government from implementing an increase.
The current government faced criticism and opposition after addressing the proposal to increase VAT. The opposition’s accusations that the government was insolvent because it had spent on economic stimulus programs were firmly rejected by the government.
On December 6, Prime Minister Paetongtarn Shinawatra addressed the concerns in a public statement and emphasized that no decision had been made to increase VAT to 15 percent. She explained that the Ministry of Finance was looking at a comprehensive restructuring of taxes to ensure fairness, reduce inequality and improve national competitiveness. The process will take time, as in other countries where tax reforms have taken over a decade.
The Prime Minister reiterated the Government’s priority to reduce public spending, increase the efficiency of public sector spending and create new income opportunities for citizens.
VAT rates in Other Countries
According to a report by Prachachat Business, VAT systems originated in France 70 years ago and have since been adopted by over 175 countries.
OECD countries, including Denmark, Italy, Finland and South Korea, have an average VAT rate of 19 percent. Non-OECD countries have an average VAT collection rate of 15 percent: Croatia (25%), Argentina (21%), Tunisia (19%), Jordan (16%), and Singapore (9%). Hungary has the highest VAT rate at 27 percent, with exceptions for certain goods and services.
Some countries, like Canada, Taiwan, and the UAE, maintain lower VAT rates at 5 percent, with exemptions for certain exports. In Saudi Arabia, the introduction of VAT at 5 percent in 2018 and its increase to 15 percent in 2020 significantly impacted businesses, reducing short-term profits by an average of 2.16 percent.
Research suggests that VAT increases may not raise sufficient revenue in economies with significant tax evasion or limited public taxpayer capacity, underscoring the need for careful policy design.
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