Thailand urged to reform high tax rates to match global standards

Thailand’s tax system requires comprehensive integration, as its current personal and corporate income tax rates exceed international standards, stated Finance Minister Pichai Chunhavajira.

During his keynote speech at the ACMA Business Forum 2024 on Shaping Tomorrow, Pichai highlighted that Thailand’s personal and corporate income tax rates are relatively high compared to competing nations. He noted that there is a global trend towards reducing these taxes to align with international norms.

Pichai discussed value-added tax (VAT), emphasising that Thailand has conducted periodic studies on this matter, similar to other countries.

“VAT relates to consumption. Those who consume more will pay more tax than those who consume less. We cannot selectively impose higher VAT on specific groups. It must be collected equally. However, part of the VAT revenue could be used to assist low-income individuals.”

Addressing debt issues, Pichai stated that the Finance Ministry would expedite efforts to assist in restructuring debt, particularly for home and car loans.

He acknowledged the complexity of restructuring such debt but emphasised its necessity for the financial stability of individuals, which would eventually benefit commercial banks.

Tax reform

Allowing more defaults could weaken financial institutions, despite their current strength, he warned.

Pichai pointed out that financial institutions have already set aside reserves for such debts or written them off, yet they continue to report high profits. He suggested that resolving these debts to help clients should ultimately reduce costs for the banks.

Reflecting on Thailand’s past economic performance, Pichai noted that the country was an emerging market between 1980 and 1985, with GDP growth rates of 9 to 10% per year. This growth was partly due to a low base and a high investment ratio, which accounted for 40 to 50% of GDP.

Currently, the investment ratio stands at 19 to 20%, leading to slower economic growth in recent years, with an average growth rate of 0% over the past five years. Excluding the Covid-19 pandemic period (2020 to 2021), Thailand’s economy has grown by only 1.9% on average, despite having the potential to grow at a rate of 3.5%. Pichai warned that without action, the country’s growth potential could further decline.

He also touched on the exchange rate, noting that the baht’s value affects export revenue, which constitutes 65% of GDP. He suggested that the exchange rate should be allowed to follow market mechanisms.

Regarding the stock market, Pichai attributed the current upward trend to several factors: confidence in the newly established government with clear policies addressing citizens’ concerns; adjustments to investment rules, such as those related to short selling, aimed at boosting investor confidence; positive responses to the promotion of new funds in line with government policies, such as the Vayupak Fund; and the decline in tech stocks in foreign markets coupled with a downward trend in interest rates, which affect the capital market, reported Bangkok Post.

“The trading volume on the [Thai] stock market once reached 80 billion baht (US$2.3 billion). If we remain in a range of 60 to 80 billion baht (US$1.8 billion to 2.3 billion), it is still possible, but we need to build confidence in the economy.”