Thailand Postpones VAT Hike

December 4, 2014 Posted by ASEAN Briefing Reading Time: 3 minutes

Thailand’s Prime Minister Prayut Chan-o-cha announced the postponement of the country’s proposed value-added tax (VAT) hike on December 2, 2014, citing unfavorable economic conditions.

The country’s growth forecasts have been downgraded by ANZ’s Roy Morgan from 1.3 percent to 0.9 percent for 2014, and from 4.8 percent to 4.2 percent for 2015.

On December 1, Finance Minister Sommai Phasee said the VAT rate may be raised by at least one percent next year to finance a planned budget increase. According to former finance minister Korn Chatikavanij, the government would accrue 60-70bn baht in annual revenue for each VAT percentage point increase. He claims the government lost 150 billion baht in annual revenue by lowering the corporate income tax rate from 30 percent to 20 percent.

This is not the first foray into tax policy by the Chan-o-cha administration, the government has previously approved plans to reform Thailand’s tax system, namely by incorporating inheritance and property taxes. Additionally, it has extended the lowered rates of corporate income tax (CIT) and personal income tax (PIT) through the 2015 tax year.

Thai authorities have been at pains to reassure investors regarding the uncertain investment climate that has resulted in the wake of the military coup and widespread protests. Last week, Commerce Minister Chatchai Sarikulya assured foreign investors that amendments to the Foreign Business Act approved by him would simplify procedures and facilitate investment. A study into the Act is expected to be completed this month, and amendments submitted to the Cabinet in early 2015.

In the mid-long term, the Thai investment climate is positive; despite restrictions on high-level meetings between EU and Thai officials following the coup, Thailand-EU FTA negotiations are on-going behind the scenes. The FTA is likely to be concluded following Thailand’s next democratic elections, expected by mid-2016.

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