• 
• 

Published on October 5, 2007

A study entitled "Assessing Fiscal Vulnerability in Thailand: Fiscal Risks and Policy Implication" - presented yesterday to the Bank of Thailand's 2007 symposium -proposes that the government implement expansion of the tax base and improve tax breaks for personal income tax.

It should also enhance efficiency of corporate income-tax collection and modernise excise duty. The value-added tax (VAT) rate should be raised if the reform of other taxes fails.

Songtum Pinto, division executive of the Monetary Policy Group, said the government would shoulder increasing burdens, particularly social expenses as a result of economic development and the new constitution. The charter also encourages the government to increase military spending to tighten national security.

 The government is still carrying burdens totalling one per cent of gross domestic product from the Thaksin Shinawatra administration's populist Ua Athorn scheme, compensation of BMTA losses and public-and-private joint ventures such as the new bureaucratic-centre project, the Airport Link and the Bang Phli-Suksawad expressway.

Foreseeable burdens included the government's plan to recapitalise the special financial institutions in a bid to strengthen them and bring them in line with new accounting standards, said Thitima Chucherd, senior economist at the central bank.

The BOT forecasts that the country will have an additional Bt547.54-billion budget and Bt633.52-billion off-budget expenses over the next 10 years.

"The risk from rising burdens will decline if populist policies are

avoided, but the country's burdens remain both in the budget and off-

budget. It could have additional burdens and higher risks if a new government adopts populist policies," said Thitima.

 According to the base-case study, the government would not have too many problems if its income and expenses grow properly. The investment budget could account for at least 25 per cent and public debts would fall from 40 per cent to 30 per cent of GDP.

 However, fiscal sustainability could be adversely affected if the government's expenses, especially social welfare, continued to increase to 24 per cent of GDP in 2017, in line with those of other developing Asian countries.

In addition, lower-than-expected economic growth beleaguered by external shocks would worsen the government's revenues, triggering surging public debts to a level exceeding the ceiling.

Thitima said that tax reform, however, would be able to balance revenues and expenses as the restructuring would increase tax revenue.

Tax revenues account for only 16.4 per cent of GDP, compared with 18.4 per cent in developing Asian countries and 32.4 per cent in industrial countries.

The study suggests the government boost its revenue by emphasising personal income tax, as the country now relies more on indirect tax rather than personal income tax. Expansion of the personal income-tax base could be adopted and tax breaks should be revised.

According to Songtum, the effective tax rate of personal income tax is only 5 per cent, compared with its progressive rate of zero to 37 per cent. Only 16 per cent of the labour force of 36.4 million are taxpayers. Tax credits are also at a high level of about one-fourth of income, or 23 per cent.

Thitima said long-term equity funds (LTFs) created unfair tax breaks under the progressive personal income-tax system. The government loses Bt37 billion in revenue if all those who are subject to personal income tax invest in LTFs.

Corporate income tax has room to expand the base because its effective tax rate is only 12 per cent, compared with the collection rate of 30 per cent. Environmental issues should also be addressed by excise-duty collection, according to the study.

 The government cannot raise the VAT base much because its effective rate is 6.3 per cent, close to the actual 7-per-cent rate. As a result, the government may have to consider raising the VAT rate only if other tax restructuring fails, said the economists.

Anoma Srisukkasem

The Nation