Government set to raise VAT rate
Thailand’s current Value Added Tax (VAT) rate of 7 percent is one of the lowest in the world and certainly one of the lowest among its ASEAN neighbours. With the two trillion baht infrastructure programme expected to rapidly advance and improve business within Thailand, the Fiscal Policy Office (FPO) of the Finance Ministry has suggested a one percent VAT rate hike is almost certain in the near future.
Even if the VAT rate does rise to 8 percent, it will remain one of the lowest in ASEAN and one of the lowest in the greater Asian region. For example, the Philippines has one of the highest rates of a goods and services tax, at 12 percent. Cambodia, Indonesia, Malaysia, and Vietnam currently levy 10 percent. Singapore charges a 7 percent rate, the same as the current VAT level in Thailand.
Only Japan and Taiwan impose a lower goods and services or VAT levy, at just 5 percent. Australia has a GST (simply VAT by another acronym) at 10 percent, an economic measure not introduced until the early part of this century.
The FPO suggests an increase in Thailand’s VAT rate from 7 to 8 percent would result in an added 50 billion baht in revenue and this would aid in financing the cost of the public infrastructure scheme.
The scheme itself is expected to contribute 40 billion baht in increased revenue because it is hoped a further 500,000 new jobs will be created.
The FPO has cautioned against a quick increase in the VAT rate, stating that it will have to happen at some point within the next seven years, but the rate rise must be timed to the economic climate at the time.
The FPO believes the best time to raise VAT will be in the period between the start of the two trillion baht infrastructure programme, which is expected to take seven years to complete and will mean a massive improvement and upgrading of the rail, road, and mass transit sectors, and before the projects are completed.
Basically, the FPO feels the rate hike should occur once some key parts of the seven-year programme are in place and functional, but before the entire programme is complete.
Currently, logistics expenses eat up around 15 percent of Gross Domestic Product (GDP), and the FPO believes the seven-year infrastructure project will help reduce this percentage. This should lead to reduced costs for businesses, which will, of course, help offset any adverse affects of a VAT hike.
The FPO also suggests the end result will mean a probable 1 percent growth in GDP from the present annual average of 4.5 percent.