TAX AND LEGAL

Finding a Balance, Part 2: How Governments are Setting a Course Forward Despite Rough Seas

Tanva Mahitivanichcha Tanva Mahitivanichcha

In Part 1 of this article, we highlighted Thailand’s plan to cut personal income taxes, introduce a tourism-themed stimulus package, and develop the Eastern Economic Corridor (EEC) – all during a time of relative economic slowdown. Here we look at how the government intends to foot the bill for these promises, and whether there might be alternatives to the plans now in place.

As we have seen, Thailand plans to spend money attracting new businesses and tourists, all while lowering personal income taxes. Given such an array of new expenses, the treasury arm of the Thai government would ordinarily come under pressure to balance the budget. Indeed, we have already seen the Ministry of Finance struggling to locate new sources of revenue.

Thailand’s Revenue Department has considered plans for imposing taxes on capital gains, casting the tax net wide enough to include on-line operators. Banks will be required to report account holders with high-volume cash transactions in an effort to seal off tax evasion. Plans are in place to increase the tax base – with a target of adding 200,000 new taxpayers per annum.

The Excise Department is likewise considering a tax on salty food products, as well as revamping the fuel tax to penalise heavy polluters. The Fiscal Policy Office is also studying the possibility of altering the overall tax structure to “take into account adjustments of corporate income tax and other taxes, to avoid affecting the government's coffers and fiscal position.” The message is clear: elected officials may implement tax cuts alongside increased spending, but the tax collector is tasked with finding a way to pay for it all.

Trying to balance the budget while meeting the country’s economic needs is always going to be challenging. But it need not be contradictory or painful, for either the taxpayer or the government. The government should look for means to improve the efficiencies of tax collection, while ensuring that tax avoidance and loopholes are kept to a minimum.

While it often seems easier to replace a tax break with a new tax, such solutions are inevitably self-defeating. They also often shift the tax burden from one segment of the population to another segment, almost arbitrarily. Alternatives do exist, although they may not sound as attractive in political speeches or policy statements aimed at catching the attention of investors.  

Thailand has one of the largest shadow economies in the world, with a scholar estimating this “untaxed” economy at  40% of the country’s GDP. The government should seek out means to widen the tax net to capture this shadow economy by simplifying the tax system, thereby encouraging private operators to pay their taxes in a clear and straightforward manner. There is less incentive to cheat and avoid taxes in a low and transparent environment as opposed to an opaque and high tax one.

Such acts require consistent and incremental efforts at improvement and modernisation, which may lack the spectacle of grand announcements. They nevertheless will be noticed and appreciated over the time. Along with improving economic transparency, such improvements will allow the government to maintain its revenue, whilst reducing tax rates on the whole.