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21 October 2014
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Tax base needs restructuring, meet hears

‘But extra income must be redistributed to benefit the poor’

Reform of the country’s tax structure should concentrate on increasing the tax base in order to generate more public income.

Lawmakers, however, should come up with measures to ensure the government redistributes that extra revenue as a means of lowering inequality, according to the Thailand Development Research Institute.

Speaking to the press at yesterday’s “BOT’s Symposium 2014”, Somchai Jitsuchon, TDRI research director for inclusive development, said he agreed with the introduction of inheritance tax, as the country did not collect enough tax on wealth and such a measure could reduce inequality between the rich and the poor.

However, it is widely known that this type of taxation is full of loopholes and cannot generate a vast amount of income, he said.

Land/construction tax

Somchai said the introduction of a land and construction tax would be more welcome, since it was more effective and could generate greater revenue.

He is favours negative income tax, although it would be hard to get people to disclose their real income.

Meanwhile, the introduction of capital gains tax and the increase in value-added tax would also be welcome, since they involved a large income base and were easy to collect.

Lawmakers should, at the same time, come up with rules guaranteeing that the government redistributed the extra income to the poor via investment in health and education, he stressed.

Somchai added that the creation of a Thai Public Budgetary Office would help monitor government spending, while such a body could also be empowered to force the government to redistribute its extra income from taxes to lower the rich-poor income gap.

He also said the measure to provide a direct subsidy of Bt1,000 per rai (0.16 hectare) of land was a populist policy which would help rice farmers, but the government should come up with a better distribution system so that all of the poor could receive such a benefit.

Meanwhile, the latest study by the Bank of Thailand shows the fiscal structure is in need of reform to generate more income and reduce expenditure, if the country does not want its credit rating to fall, reach its fiscal limit and face a public-debt ratio of 90 per cent of gross domestic product by 2035 – and 200 per cent by 2055.

The current level of public debt is equivalent to 46.6 per cent of GDP.

Thitima Chucherd, executive of the Fiscal Policy Team under the Monetary Policy Group, said that if the government continued to collect income equivalent to 22 per cent of GDP and maintained an imbalance of around 2 per cent of GDP, the public-debt ratio would soon stand at 47 per cent.

While this is still low, if the practice of providing subsidies continued, couple with the implications of an ageing society, the government would face a huge public-debt level in 50 years’ time, she warned.

She said the answer was to use tax reform to increase the revenue-to-GDP ratio to 25 per cent, while lowering excess lending and unimportant expenditure from 27 per cent of GDP to 24 per cent, as such moves would help balance out the fiscal structure in the long run.



First published: The Nation, October 18, 2014


Somchai Jitsuchon, Ph.D.
Research Director, Inclusive Development