Draft tax reform due by year end

As with many other governments around the world, the Thai government has been having a serious look at its overall tax structure, and is looking for ways to improve the overall collection of taxes as well as broaden the base and possibly reduce taxes in some areas to help stimulate the economy.

The Finance Ministry has set 31 December as the final date to have its draft proposals for tax reform ready to go to cabinet for approval or modification. The final aim will be to have a new taxation structure in place by the end of 2016.

One serious proposal is to possibly reduce the highest income level of 35 percent (currently levied on those who earn four million baht a year or more) to something of a level that will make evasion not worthwhile for most people in that bracket. It has been suggested previously that the top tax rate would be reduced to 28 percent, but this is now back on the table for further discussion.

There are plans to make adjustments to tax allowances and deductions as well as the percentage rates.

The only definite decision which has been made prior to the deadline is that the current seven-tier personal income tax regime will stay in place for a further 12 months. It had been due to expire at the end of the year, but with nothing firmly in place to replace it as yet, the cabinet decided to continue for 2016.

At present, anyone earning taxable income of 150,000 baht per year or less is not charged. From 150,001 baht to 300,000 baht of annual taxable income, the rate is just five percent. This rises to 10 percent for those earning 300,001 baht to 500,000 baht annually. From 500,001 to 750,000 baht of annual earnings, the tax rate is 15 percent. Those in the 20 percent bracket need to be earning from 750,001 baht to one million baht while people earning between one million and two million baht a year are taxed at 25 percent. The rate then jumps to 30 percent for those collecting between two and four million baht and, finally, anyone making four million baht or more per year is on the top income tax rate of 35 percent.

The Revenue Department has said there are 10.9 million people who file annual tax returns at present, but 6.4 million of these are tax exempt because their incomes are too low.

The government knows it faces a fiscal crisis within the next 10 to 15 years if it doesn’t expand its revenue base. The Finance Ministry forecasts a need for up to 600 billion baht a year for retirement schemes, and revenue will fall short of expenditure within 15 years.