Thaksin’s taxing plan to tackle poverty in Thailand

Thaksin Shinawatra is making more waves to shake up Thailand’s social, economic and political scene. His latest pitch? A negative income tax (NIT) to shake up Thailand’s tax system.

This isn’t the first time NIT has been floated in Thailand. Over a decade ago, the Finance Ministry’s Fiscal Policy Office (FPO) proposed something similar, and it was included in the 12th National Economic and Social Development Plan (2017-2021).

It even made it into the National Reform Plan under Prayut Chan-o-cha’s administration, yet it’s never really taken off. The Pheu Thai Party also nodded to a similar idea in their last election campaign, branding it the Start-Up Money Transfer Policy.

So, what’s NIT all about? In simple terms, it’s designed to tackle poverty and reduce social inequality by incentivising work. If your income falls below a certain level, the government steps in to top it up. As your income rises, the support gradually reduces until it stops altogether once you’re earning enough. It’s not a free handout—you need to be working and paying into the tax system to qualify.

Unlike traditional welfare, which can sometimes pay out to people who don’t work, NIT integrates recipients into the tax system. Those receiving government support must join the Revenue Department’s system and report their income.

While the government won’t see immediate tax revenue from this group, the idea is that as people’s incomes grow beyond the support threshold, they’ll start paying taxes, with the department already holding their income data.

Tackle poverty

The concept of NIT was first proposed by Nobel laureate economist Milton Friedman. He argued that instead of simply taxing income, the government should support those earning less than a basic survival threshold.

Friedman’s idea aimed to tackle poverty in the US without upsetting the free market, setting a minimum income level and providing government top-ups for those who earned below that level.

But for NIT to work in Thailand, the tax system needs an overhaul. Currently, anyone earning 60,000 baht a year must file taxes, even if they owe nothing, but compliance is spotty.

NIT would require everyone to file taxes, even if they earn just 1 baht. This would involve amending Section 56 of the Revenue Code to give the Revenue Department the authority to verify incomes and ensure everyone is part of the system.

However, there’s a major hurdle: public acceptance. Linking NIT to the tax system could cause confusion and fears of taxation, making it a tough sell politically. Plus, NIT requires recipients to work, excluding those who are unemployed. For these individuals, the government would need to offer alternative support, like vocational training.

The FPO believes that NIT could be part of a larger welfare reform, targeting support to those most in need through annual income declarations. This approach could help reduce the financial strain of welfare payments, which are currently a significant burden on the government budget.

Universal coverage

Major programmes like the Universal Coverage scheme and state welfare card scheme already demand substantial funding, and with political parties promising even more benefits, the strain is only set to increase.

Thailand’s revenue collection is already under pressure. Tax cuts for businesses and individuals, along with a VAT rate that has remained at 7% since 1992, have all contributed to a shrinking revenue base.

With the government’s income at around 14.4% to 14.5% of GDP—lower than pre-pandemic levels and modest compared to other emerging economies—Thailand has been running a budget deficit for two decades, reported Bangkok Post.

To steady the ship, the FPO has been urging the government to undertake tax and revenue reforms, including cutting unnecessary subsidies and reviewing tax exemptions. Thaksin’s NIT might sound bold, but it’s a high-stakes gamble in a country still grappling with budget woes and a sceptical public.

Whether it’ll prove to be the game-changer Thailand needs or just another flash in the pan remains to be seen.