BOT seeks revamp to rebalance state revenue, spending
July 19, 2014 00:00 By Erich Parpart
Calls for more tax on wealth, less off-budget projects
The Bank of Thailand is concerned about the imbalance between government revenue and expenditures and has proposed some structural changes such as expansion of the tax base and limitations on the use of off-budget spending to counter the disparity in the fiscal account.
BOT Governor Prasarn Trairatvorakul said government income was moving at a slower pace while the rate of expenditure had increased in the past year because of recent uses of off-budget spending policies, such as the rice pledging scheme. This would pose a long-term problem of imbalance in the government financial account if the problem were left unsolved.
“The variety of how we collect tax is small, and the tax system is based more on income than wealth. Therefore the income level of the government is heavily dependent on the growth of the economy,” he said. “If the economy is good, we can collect more tax, and if the economy is bad, we collect less tax.
This dependency is different from a tax system that is based more wealth that is more stable, but Thailand’s tax on wealth is narrow and close to non-existent.”
He added that the existing tax base was too narrow, since the number of taxpayers is small, and in the future there is a potential that the need to invest to increase the country’s competitiveness will be higher while fixed spending such as civil servants’ wages will increase. The ageing society is also an imminent issue that will raise government expenditures through the increase of cost of public healthcare. Therefore, Prasarn concluded, there is a need for fiscal reform to prevent this growing problem of imbalance in the long run.
BOT spokeswoman Dr Roong Mallikamas said the central bank believed that there were ways to increase the tax base, especially measures that will be proposed to the military’s ruling National Council for Peace and Order by the Finance Ministry.
These include short-term measures that can be implemented in less than a year, such as lowering the special tax benefit for private investment and introduction of the Land and Construction Tax Act, which could help expand the tax base towards wealth instead of consumption and income.
Longer-term measures involve a more direct approach that includes the revision of various exemptions in different types of taxes and increased levies on pollution and environmental impacts, she said.
Apart from increasing the base, improving tax-collection performance increasing tax rates could also raise public income. These could include such measures as an increase in the value-added-tax (VAT) rate and the tax on diesel, which is under consideration of the Finance Ministry but should be done at an appropriate time, Roong said.
She said the push to pass all government financial activities through Parliament and the introduction of an independent agency to scrutinise and reveal the details of government spending to the public, such as a Parliamentary Budget Office, could reduce the use of off-budget spending while improving transparency.