Tracing Thailand’s 34 years of VAT cuts through 23 royal decrees

Thailand’s fiscal constraints have been discussed for years.

The country has run annual budget deficits for more than two decades, and the growing shortfall has implications for fiscal sustainability.

Its fiscal deficit has remained above 3% of gross domestic product (GDP), the benchmark set by the fiscal sustainability framework, for several years.

Several proposals have been put forward to increase government revenue, including raising value added tax (VAT).

The Medium-Term Fiscal Framework for fiscal years 2027–2030 calls for VAT to begin rising in fiscal 2028 before returning to 10% in fiscal 2030, its final year.

In practice, however, Thailand has not restored VAT to 10%, the rate applied between 1997 and 1999.

It has instead continued to issue royal decrees reducing the rate from 10% to 7%.

Although the lower rate has helped sustain domestic consumption, it remains uncertain whether the planned increase can be carried out, especially with the country’s limited fiscal space.

Meanwhile, the current government’s plan to overhaul the bureaucracy and cut recurrent expenditure is not expected to deliver immediate results in the next one or two fiscal years.

Most recently, the Cabinet approved a further one-year extension of the 7% VAT rate at its meeting on July 27, 2026.

The extension will run from October 1, 2026 to September 30, 2027.

Thailand has issued 23 VAT-rate decrees

A review dating back to the introduction of the VAT-reduction policy in 1992 found that Thailand had issued 23 royal decrees relating to rate changes:

• One decree reduced VAT to 7% between 1992 and 1997.
• One decree briefly raised VAT to 10% between 1997 and 1999.
• A further 21 decrees reduced VAT to 7% from 1999 to the present.

Finance Ministry stresses need to retain lower VAT

The Ministry of Finance reported to the Cabinet that the decision to retain the rate was primarily intended to maintain economic stability, as the Thai economy continued to face several challenges.

These included high household debt, problems with SME loan quality, geopolitical conflict in the Middle East affecting energy costs, and uncertainty over global trade policy.

If the government had chosen not to extend the tax reduction and instead reverted to the 10% rate under the Revenue Code, or an effective 11.11% when local tax is included, state revenue was projected to rise by no more than THB300 billion a year, assuming consumption did not decline.

The ministry assessed that a tax increase would severely affect costs for the public and businesses and could prevent economic growth from reaching its target.

The extension would not affect revenue estimates for fiscal 2027 because those estimates had already been calculated using the current tax rate.

The measure was therefore considered an important tool for maintaining stability and supporting the Thai economy’s recovery in the period ahead.

NESDC suggests phased VAT increase

Economic agencies offered the following views on keeping VAT at 7%.

The Office of the National Economic and Social Development Council (NESDC) considered the one-year extension of the reduced VAT rate, from Thursday (October 1, 2026) to Thursday (September 30, 2027), consistent with current economic conditions, as the economy continued to need momentum from household consumption.

However, medium-term risks in the global economic and financial system were likely to continue generating volatility and affecting Thailand’s economy and its people.

Fiscal conditions were also becoming a clearer constraint on national development and could develop into a future risk without serious structural reform.

The Medium-Term Fiscal Framework for fiscal years 2027–2030 calls for VAT to rise to 8.5% in fiscal 2028 and to 10% in fiscal 2030, or for additional tax-restructuring measures that would produce an equivalent amount of government revenue.

It aims to bring the fiscal deficit down to no more than 3% of GDP by fiscal 2029.

The NESDC therefore recommended that the Ministry of Finance quickly clarify its revenue-raising approach and explain to the public and other sectors the fiscal conditions and the need for the government to collect more revenue.

It also recommended working with relevant agencies to restructure expenditure and manage state assets more efficiently, ensuring sufficient budget resources for national development while preserving long-term fiscal stability and sustainability.

It also suggested that revenue increases could begin in stages without waiting until fiscal 2028, because global economic conditions and volatility were likely to remain constraints and risks to Thailand’s economic growth.

Budget Bureau stresses fiscal stability

The Budget Bureau viewed the Finance Ministry’s proposed one-year extension as supporting domestic consumption, business activity and the Thai economy’s expansion in line with its target.

It would also strengthen confidence in the Thai economy among businesses, investors and the public, while preventing any additional tax burden on businesses and households.

The extension would cause neither a further loss of state revenue nor any impact on government revenue estimates for fiscal 2027.

However, the Ministry of Finance should identify concrete ways to improve revenue-collection efficiency and sustainably strengthen collection capacity to meet budget burdens likely to increase as economic and social structures change.

This would help preserve fiscal stability and reduce the budget deficit in line with the targets in the Medium-Term Fiscal Framework for fiscal years 2027–2030.

It remains to be seen whether the government will raise VAT in line with the framework when the current period for reducing the rate from 10% to 7% ends, with fiscal 2028 beginning on Friday (October 1, 2027).

If the increase does not proceed as planned and the government cannot secure additional revenue, Thailand could face a fiscal crisis in the future.

Source: Bangkokbiznews