Wednesday, January 09, 2008

VAT hike unnecessary if GDP rises 5%

VAT hike unnecessary if GDP rises 5%

Tax shortfall now stands at 3-4% a year


Value-added taxes would not have to increase beyond the current 7% if medium-term economic growth can be sustained at over 5%, according to Somchai Sujjapong, a fiscal policy adviser to the Fiscal Policy Office.

He said value-added taxes represented one of the most critical revenue sources for the government, and was also one of the last to be considered for increases.

Each one percentage point change in VAT rates represents tax revenues of as much as 30 billion baht per year, Dr Somchai said, adding that any change needed to carefully consider the country's fiscal position, economic situation and impact on consumer spending.

The Fiscal Policy Office is planning to propose a sweeping tax restructuring plan for the new government that includes a proposal to gradually hike VAT rates from the current 7% to the legal maximum of 10% to help increase state revenues.

A VAT increase would help balance lost revenues from proposed cuts in corporate and personal income tax rates.

The FPO projects that annual government spending will rise to 2.8 trillion baht within 10 years from 1.66 trillion under the current 2008 fiscal budget, largely due to added costs for education and health-care services.

But tax revenues under the current rate structure are projected to be insufficient to meet the added costs, with the gap estimated at around 3% to 4% per year, excluding any added expenses from populist policies that will likely be brought in by the next government.

''The new tax programme is aimed at strengthening the country's competitiveness,'' Dr Somchai said.

In addition to cuts in personal income, corporate and selected excise taxes, the new tax plan will introduce new taxes in the form of land and building taxes, both now under review by the Finance Ministry.

The land and building taxes are estimated to increase revenues for local administrations four-fold to 80 billion baht per year within three years after taking effect.

Inheritance and environmental taxes are also being considered as new measures to raise revenues.

For the first quarter of fiscal 2008 ending on Dec 31, net government revenues totalled 324 billion baht, or 0.8% higher than target. But December tax revenues fell short of the monthly target by 5.6%, due to lower-than-expected revenues from auto excise taxes as consumers delayed new car purchases to wait for the launch of new E20 gasohol-compatible vehicles.

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