Thailand’s Prime Minister, Paetongtarn Shinawatra, has dismissed immediate plans to elevate the value-added tax following backlash against a proposal by Finance Minister Pichai Chunhavajira.
This proposal, which suggested more than doubling the VAT to 15%, faced staunch opposition from both the main opposition party and a critical member of the ruling coalition.
In a statement on X, Paetongtarn clarified that the tax would not surge to 15% after consultations with the Finance Minister and her Policy Advisory Board. Instead, the Finance Ministry is embarking on a comprehensive review of the country’s tax framework with aims of reducing inequality and enhancing competitiveness. Paetongtarn emphasized that such evaluations are lengthy, citing examples from other nations that have taken a decade to amend tax rates.
Her assertion comes shortly after Pichai proposed the tax hike as a means to combat income disparity from his proposed income tax cut and generate additional revenues for public investment amidst an ailing economy. Thailand has maintained its VAT at 7% since 1999, despite ongoing discussions about a potential increase to 10%. Meanwhile, neighboring Indonesia plans to raise its VAT to 12% next year.
The proposal has met resistance from the People’s Party, urging the government to thoroughly study potential impacts before embarking on any tax reforms. The United Thai Nation, part of the military-backed coalition, also opposes the increase, contending it will inflate costs and adversely affect low-income groups.
In parallel, Pichai has suggested reducing personal income tax rates from the current 35% to 15% to attract foreign investment. Furthermore, he advocates slashing corporate tax rates to 15% from 20% as part of Thailand’s aspiration to join the Organisation for Economic Co-operation and Development.
According to the OECD, Thailand’s tax-to-GDP ratio has plateaued around 17% since 2007, trailing the Asia-Pacific average of 19% and significantly below the OECD average of 34%. VAT constituted roughly 25% of Thailand’s total tax revenues in 2022, as per OECD estimates.
