By Erich Parpart
Move will help boost economic growth, maintain home consumption, say experts
Experts agree that the National Council for Peace and Order (NCPO)’s decision to extend the cuts on personal and corporate income tax and maintain value-added tax at 7 per cent for another year will help maintain domestic consumption and continue to boost growth.
On Tuesday, the NCPO said VAT would remain at 7 per cent from October 1 until September 30, 2015, while personal and corporate income tax reductions would be in place until the end of December next year.
Personal income tax at present is divided into seven categories instead of five and the rates – 5, 10, 15, 20, 25, 30 and 37 per cent – depend on the taxpayers’ income, while corporate tax is now capped at 20 per cent instead of 23 per cent.
Vallop Vitanakorn, vice chairman of the Federation of Thai Industries (FTI), said his organisation welcomed NCPO’s decision to extend the tax rebates because it will help maintain people’s purchasing power and boost consumption, while lower corporate taxes will improve Thailand’s competitiveness and encourage investment.
“The FTI agrees with the policy to extend the tax measures because it will boost the country’s gross domestic product [GDP] and the economy is in need for such stimuli,” Vallop said.
Therdsak Thaveeteeratham, executive vice president of Asia Plus Securities’ research department, said the decision to keep VAT low will help stimulate economic growth as 55 per cent of the country’s GDP was derived from domestic con?sumption. He pointed out that export only accounted for 10 per cent of the GDP, so when the value of export is less than imports, then the GDP is only affected by a 5-to-8-per-cent reduction.
Curb on prices
“Prices of consumer goods will rise if VAT is increased, which will then lower people’s purchasing power, and since the GDP relies greatly on domestic consumption, there is a need to maintain this purchasing power,” he said.
As for keeping corporate income tax at 20 per cent, Therdsak said this police was in line with the measures that had been put in place earlier to prepare for the launch of the Asean Economic Community (AEC).
The previous government had cut corporate income tax from 30 to 23 per cent to help boost the Kingdom’s competitiveness ahead of the launch of AEC next year.
“The cuts will help maintain the country’s competitiveness since Thailand is already on the frontline in terms of tax rate and the measure is within the framework put in place by the previous government,” he said.
Somchai Amornthum, executive vice president of Krung Thai Asset Management’s research department, said keeping VAT low would help ease the anxiety of consumers, but the government should eventually raise the tax to boost public income.
“Maintaining VAT at 7 per cent will facilitate economic recovery by maintaining people’s purchasing power, but eventually the government will have to up it to 10 per cent to cover spending on infrastructure in order to boost the country’s competitiveness,” he said.
“Increasing the VAT in the future will slow down the growth temporarily, but if the money earned from increased taxes is used to enhance Thailand’s competitiveness through investment in infrastructure, it will certainly be worth it.”
Somchai said if the government wanted to avoid increasing VAT in the future they would have to expand their tax base from the current 2 million, and the only way to do this fairly would be to increase the burden on the rich by introducing inheritance and land tax.
As for keeping corporate income tax low, Somchai said it was a good idea and the NCPO or the next government should consider maintaining it at 20 per cent on a permanent basis instead of continuing to extend the temporary measure. He said dividing the personal income-tax brackets into seven should also be made permanent.