In the past several years, various economists have called for restructuring Thailand's tax system but met with little response from the government or society at large.
Yet the idea gained more attention recently after the National Economic and Social Development Council (NESDC) told the public that the country's tax structure has many loopholes that lead to unfair taxation and widen inequality.
As parties roll out populist policies ahead of the election in May, the NESDC says the government needs to revamp the tax structure, particularly with regards to personal income tax, to reduce the widening income gap and support higher spending in the future.
According to the government's think tank, the government has collected a low amount of personal income tax in recent years. During the period 2013-2021, revenue from personal income tax accounted for only 2.09% of GDP on average, which is low compared with an average of 8.3% for countries in the Organisation for Economic Co-operation and Development (OECD).
Thailand has a proportion of personal income tax to total tax revenue of 12.3%, lower than the average of 24.5% of Malaysia, Singapore and G20 member countries excluding the US. A crucial problem in the current tax system is the large number of tax deduction incentives for high-income earners in Thailand.
In 2021, tax deductions cost the state more than 110 billion baht, representing 51.8% of personal income tax collected that year. It will take more time for the government to balance its budget in the future if the tax structure is not revamped and expenses adjusted to increase state revenue.
In 2012-2013, during the Yingluck Shinawatra administration, Thailand's tax system underwent a major overhaul. The key changes included reducing the corporate income tax rate to 20% from 30%, and cutting the maximum rate of personal income tax to 35% from 37%, as well as increasing tax deductions for personal income taxes.
The changes have widened opportunities for high-income earners to gain tax rebate benefits more than it has lower-income ones.
Currently, taxpayers can claim deductions on contributions to the Social Security Fund and provident funds, prenatal care and the care of dependent children and parents, as well as investments in retirement and long-term savings funds, life insurance and health insurance.
Thailand imposes a progressive tax system but, practically, high-income earners receive disproportionately greater benefits from tax deduction schemes, and some even enjoying regressive taxes.
One study shows that a high-income earner with an annual net income of more than 20 million baht can enjoy a tax rebate of almost 400,000 baht due to deduction incentives, while an earner with an annual income slightly above two million baht can receive a tax rebate of up to 70,000 baht. For an earner with an annual income of between 300,000 and 500,000 baht, the maximum tax rebate they can gain is just 7,500 baht.
The NESDC's proposed restructuring of the tax system should be taken into consideration by any party that wins the election and forms the next government.
Thailand needs tax restructuring to bridge the income gap. However, to do so, data on taxpayers and the proportion of taxes paid by different income groups must be taken into account.
Any change must be fair to all income groups and not burden middle-income earners -- the largest taxpayer group in the country.
