On 7 May 2015 the International Monetary Fund (IMF) issued a staff report resulting from consultations with officials in Thailand under Article IV of the IMF’s articles of agreement.
Thailand’s growth rate has fallen behind those of its neighboring countries during the period since the financial crisis. The openness of Thailand to international trade exposed it more to the global slowdown in trade and this effect has been increased by slow technological upgrading and an interruption in the flow of workers from agricultural to more productive economic sectors combined with political instability.
Thailand needs to increase economic growth in the short and medium term while maintaining stability. The government is undertaking comprehensive reforms including education, healthcare, infrastructure investment and policies to enhance growth and regional integration. The economy grew around 1.5% year on year in the second half of 2014 and growth averaged 0.7% for the year. The IMF staff forecast growth of 3.7% in 2015.
The fiscal position weakened in 2014 owing to the slow growth in the economy and to tax reductions and other measures that had been approved earlier. The corporate income tax decreased from 30% to 23% in January 2012 and to 20% in January 2013. General government revenue decreased from 24.1% of GDP in 2012/13 to 22.5% in 2013/14. Government expenditure remained at 24.3% of GDP. In the 2014/15 budget the planned deficit was largely unchanged at 2% of GDP.
The IMF staff welcomed the planned introduction of an inheritance tax and also welcomed plans to strengthen property taxes by enhancing the progressive nature of the tax system. The current priorities are the changes to these taxes and the energy reform. The IMF considers that the government should look at further measures in the medium term including an increase of the VAT from 7% to 10% as soon as the economic recovery is well under way. This VAT measure would be accompanied by programs to protect the impact of the measures on vulnerable groups in society. A higher standard rate of VAT is important for bringing the fiscal balance back to equilibrium, offsetting the recent losses to government revenue from the decrease in personal and corporate income taxes.
Thailand’s tax authorities are reviewing the efficiency of tax administration. The IMF considers that there are opportunities to improve the processes of core tax administration such as registration of taxpayers, filing and processing of tax returns and payments, and the collection of tax arrears.
