FISCAL POLICY / TAXATION

'Sin' taxes may rise as others will fall

WICHIT CHANTANUSORNSIRI

A strategic review of the country's tax structure recommends that personal-income and corporate taxes be reduced to cut the financial burden on employees and businesses.

At the same time, value-added taxes and ''sin'' taxes may increase to compensate for any revenue loss to the state.

The Finance Ministry study reviewed tax rates across the board, including personal-income, corporate, excise and customs taxes, under a policy aimed at strengthening the country's competitiveness and spurring medium-term investment. The review recommends reducing personal and corporate taxes to help boost the economy. Personal income taxes currently range from 10% to 37%, with the marginal rate applying to people earning more than four million baht per year. Corporate taxes are fixed at 30%.

The Finance Ministry also recommends a VAT increase from 7% to 10% to help recoup revenues lost from other tax deductions. Authorities say every percentage-point increase in the VAT adds up to annual revenues of 40 billion baht, or a possible gain of 120 billion baht if the VAT is raised to 10%. Additional revenues could come from higher ''sin'' taxes, including excise tax charges on tobacco, alcoholic beverages and other products and services.

The Finance Ministry reviewed tax rates across the region and noted that Thailand's corporate taxes exceed those of competing countries. Singapore and Malaysia have corporate rates of of 26%, and 28% respectively.

To make Thailand more attractive to investment, authorities are considering cutting corporate tax rates to 25%, one Finance Ministry official said.

The Revenue Department already allows newly listed companies on the SET to qualify for a 25% corporate tax rate under a programme to help the capital market. Small and medium-sized companies listed on the Market for Alternative Investment benefit even more with a corporate tax rate of just 20% for a five-year period after listing.

But while the Finance Ministry supports a corporate rate cut, reductions in personal-income taxes are more complicated. Officials said their strategy is to ensure that the marginal personal tax rate is higher than the corporate rate to encourage businessmen to maintain earnings through juristic entities, which must be approved by independent auditors.

If personal-income taxes are reduced to below the corporate rate, businessmen could be encouraged to shift earnings from their companies to their personal accounts, making it more difficult to spot tax evasion.

Officials said they will also review special business taxes, particularly taxes on financial institutions. Local banks have long complained that business taxes on interest earnings fail to account for expenses incurred from interest paid to depositors.

Bangkok Post

Monday April 09, 2007