Finance Ministry may woo public on wisdom of VAT increase to 8 per cent

The Finance Ministry yesterday said it might launch a campaign to convince the public of the need to increase value-added tax and explain the impact of such a move on consumers.

It also denied a news report of a plan to cut the rate of corporate income tax to 15 per cent.

"We may need to tell the public first why we need to raise VAT, before we can increase the rate by 1 percentage point," said Rangsan Srivorasat, the ministry's deputy permanent secretary.

Rangsan said he had consulted with Satit Rungkasiri, director-general of the Revenue Department, about the possibility of raising VAT to 8 per cent from the current level of 7 per cent.

He said business leaders and economists supported the idea of a VAT hike, since the rate is quite low when the current stage of Thai economic development is taken into consideration.

However, both the current and previous governments had been unable to increase the rate, not least because such a tax hike would be unpopular among voters.

A 1-percentage-point rise in VAT is unlikely to have a significant impact on the lower-income groups, he maintained, because rice and other agricultural products are exempt from the tax.

The Cabinet last August extended VAT at 7 per cent for a further two years. It decided the tax rate should then be raised to 9 per cent.

However, as increasing the level of VAT is so politically sensitive, a public relations campaign would first be needed if the ministry wanted to embark on such a course, Rangsan said.

The government is under pressure to raise more revenue, having cut corporate income tax from 23 per cent to 20 per cent this year.

"We do not yet know how the reduction in corporate tax will affect government revenue," he said, adding that a 1-percentage-point rise in VAT would result in an annual revenue increase of between Bt50 billion and Bt60 billion.

He also denied a report suggesting that Satit planned to propose a further cut in corporate tax to 15 per cent.

Economists have long called for a VAT rise, as the government needs to find more revenue to cover the rising cost of social welfare.