Tax reform can unleash Thailand’s ‘massive’ potential: World Bank

The reform can lead to banks investing in people to ensure Thailand moves from a middle-income to a high-income country, the institution said.

Nongluck Ajanapanya

Nongluck Ajanapanya

The Nation


June 5, 2023

BANGKOKReforming income tax is urgently needed to increase government revenues so that it can invest in people to ensure Thailand moves from a middle-income to a high-income country, the World Bank’s country manager for Thailand, Fabrizio Zarcone, told The Nation in an exclusive interview.

His remarks came as a new government prepares to take office, following an election in which all major political parties campaigned on increasing social-welfare spending.

Barely 4 million Thais pay income tax and such a small number will impede the country’s economic development, according to the World Bank report “Thailand Public Revenue and Spending Assessment – Promoting an Inclusive and Sustainable Future”.

“A lot of work needs to be done to broaden this [tax] base,” Zarcone said.

Structural reforms of the tax system have the potential to unleash Thailand’s massive potential and the excellence of its private sector, which is driving growth, he said, adding: “The incoming government will have a heavy burden, but I believe it will be worthwhile to try to implement these reforms.”

Following massive spending on subsidies and stimulus during the Covid-19 pandemic, the report advised focusing on balancing expenses and revenues in the fiscal budget.

Thailand does not have to discontinue all subsidies to accomplish this, Zarcone said.

Instead, they should be targeted to help vulnerable groups, while other substantial expenses can be streamlined so that Thailand can become a high-income country, he explained, adding that necessary expenses include education, social protection, healthcare, and other investments in developing human capital.

“When a country like Thailand achieves high income, it not only gains a new status … it also assumes a great deal of responsibility towards its people. People will deserve better sandwiches, a better healthcare system, and better education to ensure the country’s long-term progress. And this will only happen with increased expenses,” Zarcone said.

Higher expenses do, however, require the government to increase its revenue collection.

“If we want sustainable finance, we need to increase the revenue as well … We suggest to increase VAT [value added tax] and property taxes along with proper measures and policies to prevent negative impacts on the poor while [being fair to] the rich,” Zarcone said.

Taxation is a very complex issue with many political and economic implications that must be carefully considered, he said, adding that decentralising revenue collection could be considered.

As a new government takes office, it is critical that all additional spending be appropriately supported by tax revenues, Zarcone said, adding:

“Thailand has been a champion of fiscal [discipline], as well as in maintaining an active ratio of spending to revenue. So, absolutely, each of these expenses must be analysed, thought through, and if deemed appropriate, the necessary resources to fund them must be found.”

Zarcone called for more innovative reforms, saying: “When we look at the Covid situation, I believe Thailand has shown resilience on one side. However, there is a conservative [side] on implementing reforms that must be changed.”

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