NESDC warns government to wait for economic recovery before raising VAT

The National Economic and Social Development Council (NESDC) has advised the government to delay raising the value-added tax (VAT) until Thailand's economy has fully recovered, without relying on short-term stimulus measures.

The warning was issued at a press conference on Monday, where the NESDC shared its findings from a study on VAT increases in other countries to inform the government on the potential benefits and drawbacks of raising VAT.

Economic impact of a VAT increase

NESDC Secretary-General Onfa Vejjajiva highlighted that a 1% increase in VAT would generate an additional 93 billion baht in government revenue. However, Onfa cautioned that lessons learned from other countries indicate that VAT hikes should be postponed until the economy has genuinely revived. She stressed that any VAT increase should be implemented gradually and accompanied by measures to protect vulnerable groups, particularly low-income citizens.

Ongoing debates on VAT increase

The issue of a VAT increase has sparked significant public debate, especially after the Cabinet approved a medium-term fiscal plan for 2026-2030, which aims to boost state revenue and reduce the budget deficit. The growing discussion prompted Prime Minister Anutin Charnvirakul to reassure the public that the government currently has no plans to raise VAT.

Thailand’s VAT rate compared to ASEAN and OECD countries

Onfa pointed out that Thailand collects approximately 992.829 billion baht in VAT annually, accounting for about one-third of total government revenue. The VAT rate has remained at 7% since 1997, despite the law permitting an increase to 10%. Thailand’s VAT rate is currently the lowest in Southeast Asia and below the median rate of OECD member countries. While the rate is low, Onfa noted that Thailand faces increasing pressure to fund welfare programs and care for its ageing population.

Public debt concerns

With revenue growth lagging behind spending, the NESDC forecasts that public debt in 2025 will rise to 12.2 trillion baht, or 64.8% of GDP. Without concrete revenue-raising measures, public debt is expected to increase to 15.3 trillion baht, or 68.2% of GDP, by 2030.

Successful VAT hikes in other countries

The NESDC's study also examined countries that have successfully raised VAT, including Singapore, Japan, the United Kingdom, and Colombia. Key factors for success included:

• Clearly defining the purpose of income allocation
• Gradually adjusting the rates
• Providing a transition period for businesses and the public to adapt
• Implementing compensation measures for low-income groups

For example, Singapore gradually increased its Goods and Services Tax (GST) by 1-2% since 2018, offering GST vouchers and subsidising healthcare and utilities for low- and middle-income earners. In Japan, VAT rates of 10% and 8% were applied to different consumer goods, with transitional periods and measures to support consumers, such as tax refunds and subsidies for low-income families with newborn children.

VAT increase considerations for Thailand

Onfa recommended that if the government decides to increase VAT, it should ensure that the extra revenue is directed towards state welfare programs, such as:

• 91 billion baht for allowances for 11.5 million elderly citizens
• 55 billion baht for monthly allowances for 13.5 million state welfare cardholders
• 18 billion baht for allowances for 2.3 million newborn children

Improving tax collection efficiency

In addition to a potential VAT increase, Onfa emphasized the importance of improving tax collection efficiency, as seen in other countries. By enhancing tax administration, the government can generate additional revenue to support its welfare initiatives and reduce public debt.