Grasping the VAT nettle

The proposal to raise value-added tax from 7% to 8.5% in 2028, and to 10% in 2030, by Deputy Prime Minister and Finance Minister Ekniti Nitithanprapas is a display of political courage rarely seen in a political landscape where politicians are quick to spend money in the name of “economic stimulus” but stay mum when asked how to finance the schemes.

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Public debt reached 64.8% of GDP at the end of September and is expected to exceed 65% next year, only a short distance from the 70% permitted ceiling.

At the same time, recurrent expenditure, including salaries and the fast-rising cost of state welfare programmes, now accounts for roughly 70% of the budget and is still expanding. This places growing pressure on Thailand’s competitiveness and sovereign credit rating. Moody's has already assigned a Baal rating with a negative outlook, while Fitch maintains BBB+ with a stable outlook. These warnings cannot be dismissed.

Although Thailand’s VAT legislation already allows for a ceiling of 10%, no government over the past three decades has dared to raise the rate, fearing an electoral backlash. Mr Ekniti’s proposal shows the need to confront reality instead of evading it.