The caretaker government yesterday approved changes that would increase individual tax deductions from Bt60,000 to Bt100,000. The bill, if approved by the next government, would take effect from next year.

It was one of several controversial decisions at yesterday's Cabinet meeting.

Speaking after the meeting, caretaker Deputy Finance Minister Chaiyot Sasomsub said the policy would reduce personal tax revenue by Bt10 billion.

"Under the existing rule, those who earn Bt15,833 per month or less than Bt190,000 a year are not subject to personal income tax. But under the new rule, the minimum level would be Bt19,166 a month or no more than Bt230,000 a year.

"This would increase personal spending power. Though we're losing some money, the impact on the economy would be worthwhile," Chaiyot said.

"The decision is not politically motivated," he claimed.

The increase in the deduction allowance is expected to win praise from individual taxpayers, who are coping with a higher cost in living, fuelled by high oil prices and high interest rates.

However, academics' say tax deductions are a matter for the next government - not something that a caretaker administration should be proposing just ahead of an election. The move will be interpreted as another ploy to win votes, they say.

Caretaker Prime Minister Thaksin Shinawatra has also promised an immediate hike in pay for civil servants if his Thai Rak Thai Party is voted back to form the new government.

And, despite a potential drop in government revenue due to the measure, the Cabinet also approved investment of Bt140 billion in three mass-transit lines in Bangkok.

The decision came despite calls for the interim government to wait till after the election before deciding on expensive public works likely to be a burden on the central budget for years to come.

Transport Minister Pongsak Ruktapongpisal said after the meeting bidding for the three lines could start within three weeks.

Approval of the rail lines and the proposed increase in the tax deduction allowance came amid concerns the government may not achieve its revenue target this year.

The murky economic outlook and political turmoil slowed private investment and consumption in the second quarter.

Nonetheless, Paitoon Pongkasorn, deputy director-general of the Revenue Department, put an upbeat spin on the tax decision, saying: "The measure will not affect the country's revenue

collection and the Revenue Department will instead gain from value added taxes when the taxpayers have a larger amount to spend."

Teerana Bhongmakapat, an economic lecturer at Chulalongkorn University, said tax breaks should not be given by a caretaker government ahead of a new election. But lowering the tax burden was appropriate for economic reasons.

"The increase is likely to be supported by the new government whether the new government is led by Thai Rak Thai or the Democrats," Teerana said. But he said the move could be viewed as a political decision.

The lecturer supported the tax move, saying the tax burden was too big for salaried workers.

He said any tax break should be enforced immediately to compensate for the delay in the new budget. Tax reductions would be a more effective boost to the economy.

Teerana also suggested the new government cut corporate income tax from 30 to 25 per cent.

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