Tax filing and payment deferrals: Are they enough?

In response to the Covid-19 economic crisis, Thailand is joining other countries in rolling out new measures to relieve cash-strapped households and businesses. To date, the Thai government’s support has come in the form of a deferred income tax payment deadline for businesses and individuals, deferred VAT, special business tax, and stamp duty payments for businesses, in addition to reducing the standard withholding tax rate from 3% to 1.5%. The government has also pledged to accelerate the VAT refund process for qualified businesses.

While any tax relief is welcome at this time, tax deferrals and qualified income tax reductions are insufficient. With massive unemployment, loss of occupation, and businesses shuttered, taxpayers are unlikely to have funds to pay income tax once the deferral period expires in August.

It is only fair to acknowledge that the income tax is due on income earned in 2019, and is thus rightfully owed to the government. Yet many taxpayers have probably consumed the bulk of their savings or retained earnings in an effort to stay afloat over the past two months.

Furthermore, a reduction in the withholding tax rate is an illusion of tax relief. Withholding tax is essentially an income tax imposed at source. Given that most businesses will be in the red this year, they are unlikely to be paying any income tax for 2020. Still, few businesses would want to brave a potential tax audit during this period in an effort to seek a withholding tax refund.

The government has to be bold. Taxpayers must be allowed to reduce the cost of living in this time of crisis. Once some level of normalcy returns to the economy, efforts must be made to “reboot” the economy by enhancing spending. Every baht earned or spent must be made to generate maximal multiplier effects on the economy.

A reduction to the VAT rate will be instrumental in achieving this effect. As a form of consumption tax, every baht saved on VAT implies an additional baht that consumers could save or spend on their daily expenses. Prices for goods and services will effectively fall, thus encouraging additional consumption which will in turn stimulate the economy.

VAT is a significant source of government revenue, and slashing it would be a difficult decision for Thailand to make. With massive amounts of fiscal stimulus being pumped into the economy and an anticipated decline in income tax revenue, the government will be hard pressed to balance its own budget. But with the survival of the economy at stake, such difficult decisions must be placed on the table and given close consideration.