VAT hike will give more room for budget deficit: Sommai

– Thailand news selected by Gazette editors for Phuket’s international community

PHUKET: The Finance Ministry is likely to increase the value-added tax (VAT) by at least 1 per cent at the end of next year, giving it room to widen the budget deficit by more than Bt300 billion in fiscal 2016, above the 12-13 per cent in the current (2015) budget.

Presently, the VAT rate is set at 7 per cent.

“The increase of VAT by 1 per cent, however, should be enough, as that is the minimum rate of increase,” Finance Minister Sommai Phasee said.

While public debt at 46 per cent of gross domestic product is still relatively low and international reserves are still high, it would mean the government could afford more off-budget borrowing, he said.

The government has adopted a budget of Bt2.575 trillion for fiscal 2015 with a deficit of Bt250 billion or 1.9 per cent of GDP along with a state enterprises budget of Bt300 billion.

More investment planned

Sommai told investors at the “Asia Wealth Forum 2015 Investment Outlook”, organised by Asia Wealth Securities yesterday, that since the political situation had returned to stability, the government could and would definitely invest more, especially in transport infrastructure, water management projects, and social welfare such as health and education. These investments would require the government to have a bigger budget.

Planning for the 2016 budget will begin in the middle of January 2015.

“The government budget could be increased to Bt2.88 trillion in 2016 from Bt2.57 trillion in 2015, an increase of at least Bt300 billion, to support the government’s investments, which will definitely increase in the years to come,” he said.

“The reform of the tax structure would allow the government to have more income in 2015 and 2016. I expect the income from tax in 2016 to increase by 12-13 per cent after the reform process is complete. Meanwhile, the government budget deficit in 2016 should be the same as in 2015, but in my mind, it could increase to Bt300 billion,” he added.

Sommai explained that an expansionary policy for the government’s budget is necessary as most of the outflows leading to the budget deficit in 2015 are interest payments for the Financial Institutions Development Fund and the debt from the rice-pledging scheme and were not for government investments. He said the deficit would need to be widened to cover the increase in the proposed investments.

“If we are going to invest for the future, we have to dare to increase our loan budget and we still have a good enough credit reputation to borrow more,” he said.

He added that to support the budget expansion, we would have to increase taxes also from the introduction of land and construction tax and VAT, which would be done by the end of 2015 fiscal year.

Pichit Akrathit, chairman and chief executive officer of Asia Wealth, said the government should delay the VAT rate increase to beyond 2015 to stimulate the economy next year, as the VAT increase could slow down domestic consumption, which is still needed for economic expansion next year.

— Phuket Gazette Editors