Corporate tax to fall, taxpayer numbers to rise

The corporate tax rate is set to be cut from 23 percent to 20 percent in 2013, a move which the Revenue Department estimates will cost the government around 150 billion baht in income.

To offset this potentially quite serious loss of revenue, the various departments and authorities charged with filling government coffers are hoping to bring a further 200,000 taxpayers into the system during the current fiscal term.

At present, there are approximately nine million individual taxpayers as well as a further 350,000 corporate taxpayers and 360,000 paying just VAT. If the target of an added 200,000 is reached that will mean the government’s income base will be spread to nearly 10 million registered taxpayers.

With personal income tax rates also being modified this financial year, the government bean counters are suggesting these measures will lead to a 25 billion baht drop in returns. Allowing married couples to file separate returns is also estimated to lead to a drop of seven billion baht in tax revenue.

Given that VAT currently generates the largest slice of the overall revenue pie for the government, it is highly likely the rate will be increased from its current seven percent. Legislation means this cannot take place before 2014 and even then VAT can only be increased to a maximum 10 percent. Nevertheless, since it does indeed account for the largest chunk of government revenue it is almost certainly going to be heading up.

For now, the government’s fiscal advisers are not only looking at ways of making up the expected shortfalls in revenues due to the reduced corporate tax rates and the restructuring of the personal income tax system, they are also looking to revamp and overhaul the methods of tax collection.

The Revenue Department is slated to spend around two billion baht on upgrading its database and implementing IT improvements to have a far more efficient tax collection setup.

Currently total revenues run to around 1.16 trillion baht per annum, but with new measures and efficiencies in place the aim to return around three trillion baht within the next two years.

While tax cuts, both corporate and personal, will lead to reduced revenues, those charged with creating government policy believe the economy will benefit from consumers and even businesses having greater disposable income. The hope is that this added money in the hip pocket will lead to higher consumption and further corporate investment.

If that happens at a solid level then the expected shortfalls may not be as bad as predicted. Equally, the reduced corporate tax rate could serve as an incentive for foreign investment.