Rising VAT returns help the budget bottom line

The Department of Revenue recently released its first quarter figures for 2016 which showed that value-added tax (VAT) revenue from domestic purchases of goods and services rose by nine percent year-on-year.

Analysts within the Revenue Department suggest the VAT rise, between 15 January and 15 March this year is attributable to the government’s single financial account scheme. They base this on the fact that VAT revenue had grown by only about three percent over the previous four years.

The single financial accounting scheme was initiated to draw the large number of small and medium-sized enterprises (SMEs) to enter the formal tax system by offering them tax perks and exemption from backdated tax probes. More than 400,000 SME operators registered for the scheme.

Under the scheme, SMEs which have registered and have annual sales of up to 500 million baht are exempt from being scrutinised for back taxes. Those with registered capital not exceeding five million baht and revenue not exceeding 30 million baht for the 2015 accounting year will have no tax burden for the 2016 accounting year.

Corporate income tax of 10 percent will be imposed on those SMEs whose net profits exceed 300,000 baht for the 2017 accounting year, while tax exemption will be allowed for net profits of up to 150,000 baht.

SMEs will resume paying normal tax rates from 2018. They are currently exempt from corporate tax for net profits of up to 300,000 baht but pay 15 percent tax for net profits of 300,001 to three million baht and 20 percent for net profits of more than three million baht.

The generous but sensible scheme helped to push the government’s revenue collection to 231 billion baht in June, 7.4 percent above its target. The prime reasons for the bonus income were higher-than-targeted corporate income tax and the nine billion baht received from digital TV licence payments.

Corporate income tax surpassed its June target by six billion baht although revenue contributed from VAT in June fell three billion baht short of the target. Nonetheless, VAT on domestic purchases of goods and services rose eight percent over the same period last year to 39 billion baht.

Taking a broader view of the revenue stream, between October 2015 and June this year the government accrued 1.79 trillion baht, which was 78.4 billion baht higher than targeted, although VAT was actually seven percent (40 billion baht) below target in the first nine months of this fiscal year.

Overall, the government can be pleased that revenue collections are at least starting to come together in a positive way for the general health of the Thai economy.