Thailand and Taxes

Today is tax day in the United States, a date many Americans dread whether they owe Uncle Sam or think they have paid too much already. April 15th always reminds me of the first time I had to pay income tax in Thailand. It was 1979, and I was employed by the Thai government teaching English in Bangkok. I had been working at the university for a year when I was told that I needed to go the administration building “immediately” to pay my income tax to the Royal Thai government. I had worked throughout high school and college, and I had always received a full tax refund because I had never made enough money. In Bangkok, my salary was 9,000 baht per month (about $450). The average Thai at that time made about $588 a year. My salary was enormous. How much would I owe?

I arrived at the administration building and announced that I had come to pay my income tax. The woman behind the counter paged methodically through a ledger, searching for my name. With dread, I awaited what she would find. Finally, she said slowly, “John, you owe 53 baht.” At that time, 53 baht was worth $2.65. To my great relief, this was a tax payment I could make right then and there. My taxes after that were always about the same: I don’t think I ever paid more than 60 baht ($3.00). I realize now, whenever I pay taxes in the U.S. (as I did this year), that I will never have it so good again.

But in 2015, as Thailand has entered the ranks of upper-middle-income countries, the nation’s tax system needs serious restructuring. Thailand’s tax revenues today are the lowest in ASEAN. Tax revenues in 2010 were 20 percent of GDP. Five years later, they are just 17 percent, and the downward trend is projected to continue. The government is increasingly starved for revenues to support investments in infrastructure and schools, yet successive governments, whether democratic or military-led, have been unwilling to raise or levy taxes, particularly a property tax. This March, citing a sluggish economy, Prime Minister Prayuth Chan-ocha put a draft tax on land and buildings on indefinite hold, saying that it would impose too great a burden on too many people.

Many Thais, both rich and poor, are simply outside of the tax system. Just three million Thais out of 67 million regularly pay income taxes. No one likes taxes – it is human nature to try to avoid them, and many Thais do – but the greater the number of the exempt, the greater the tax management costs. This is to say nothing of the corruption factor.

Another issue for current and future Thai governments is subsidies initiated by former Prime Minister Thaksin Shinawatra and continued by subsequent Democrat and Puea Thai administrations. Despite a pledge by the National Council for Peace and Order to reverse these populist policies, they have yet to do so. Meanwhile, taxes remain low.

In the long term, these populist fiscal policies are simply unsustainable. For Thailand to remain competitive and strengthen its position as Southeast Asia’s manufacturing, transportation, and operations hub, it must invest – in railways, ports, roads, and other infrastructure. This investment is all the more urgent as the advent of the ASEAN Economic Community looms in December. Public-private partnerships will play an important role, but tax revenues must also grow. This will require leadership.

Big business and wealthy interests in Thailand oppose the shelved land-and-buildings tax because of uncertainty about its impact on property, retail, and hotels. Low- and middle-income Thais are also uneasy. The challenge for the government, whoever is in power, is to make a compelling case for this and other taxes. Such levies must be imposed fairly and transparently, and citizens must clearly understand how their money is being used in projects and programs that benefit all.

While I was once a direct beneficiary of Thailand’s low tax rates, we all know that for Thailand to succeed and prosper as an upper-middle-income nation, the government must have enough money to provide the goods and services that the public demands. Taxes are an important part of this equation. And like citizens worldwide, Thais have the right to a say in how their taxes are being spent. The more Thais who pay taxes, the stronger the people’s voice will be.

John J. Brandon is senior director of Regional Cooperation Programs for The Asia Foundation in Washington, D.C. He can be reached at [email protected]. The views and opinions expressed here are those of the author and not those of The Asia Foundation.