Cabinet keeps VAT at 7% for another two years

The Finance Ministry reasoned that the tax rate should be maintained for another two years, given the enormous impacts the flood disaster had on the economy. Gross domestic product in 2011 registered growth of only 0.1 per cent, against 7.8 per cent in the previous year. Keeping VAT at 7 per cent would spur purchasing power, to allow the normalisation of consumption and investment and stabilisation of the economy.
“The extension of the 7-per-cent tax rate will spur purchasing power, private consumption and private investment, which are key factors in economic recovery,” said Finance Minister Kittiratt Na-Ranong.
Thanit Sorat, vice chairman of the Federation of the Thai Industries (FTI), said keeping the 7-per-cent rate for another two years was a good strategy to promote the domestic economy amid global economic uncertainty.
However, he expressed some concerns on the government’s ability to earn more revenue, as it plans to spend huge amounts on many projects. An increase in VAT is one method to earn more revenue. Thanit said the government should clearly draw up a plan to earn revenue to increase fiscal stability.
He also noted that the government still had room to increase VAT in the near future as Thailand’s 7-per-cent rate is quite low compared with other countries’. However, since consumers have long been familiar with the low levy, the government should gradually increase the rate by 1 percentage point a year towards its target.
In other Asian countries, VAT is 9-10 per cent. China’s VAT for consumer goods is 17 per cent and for fresh fruits and vegetables 13 per cent.
Korrakod Padungjitt, deputy secretary-general of the FTI, said he expected the government to maintain the VAT rate again after the two-year extension expires.
Anusorn Tamajai, dean of the economics faculty of Rangsit University, agreed that the VAT rate should be maintained or all consumers would be affected.
Deputy Finance Minister Tanusak Lekuthai said last year’s floods affected the labour market, and purchasing power declined. Maintaining VAT at 7 per cent for two years would hence boost purchasing power and reduce the cost of living.
Revenue Department director-general Satit Rangkasiri said that once the economy got back on track, the government would be able to raise tax revenue in the long term.
Earlier, Kittiratt said that though the 7-per-cent rate was lower than those of many other countries, the government had worked diligently on including all parties in the taxation system. One solution was to reduce the corporate tax rate, as this would discourage companies from evading all types of taxes including VAT.
Thailand imposed a 10-per-cent VAT in lieu of a variety of trade-related taxes in 1992. On April 1, 1999, the rate was temporarily cut to 7 per cent, to ease the impacts from economic crisis. VAT is the biggest generator of tax revenue.
According to a KPMG survey in 2007, the average VAT rate in the European Union was 19.2 per cent, against 14.2 per cent in Latin American and 10.8 per cent in the Asia-Pacific region.