Thailand’s government faces internal rifts over OECD tax changes, with disputes over corporate tax, VAT hikes and an anti-coup law. In the meantime, the country pushes forward with reforms aimed at full OECD membership. This comes despite challenges to the government despite widespread public support.
This week, cracks in the cabinet appeared wider as former Prime Minister Thaksin Shinawatra and his daughter, Prime Minister Paetongtarn Shinawatra, seemed determined to shake up the economy. A key point of issue came on Wednesday when a special cabinet meeting approved a minimum 15% tax on large multinationals. The move is believed to be linked to reports of changes in the VAT rate and Thailand’s program to join the Organisation for Economic Co-operation and Development (OECD). This has already resulted in tax changes for foreign residents but is seen as a way for Thailand to reinvent its economy and at the same time pave the way for full OECD membership.
Thailand became the second Southeast Asian country to apply to join the organization in February 2024. A roadmap was agreed upon with the Paris-based body in June. At this time, that roadmap appears to be at the centre of government decision-making.
This week, the government launched what is considered a pragmatic and well-thought-out effort to combat household debt. However, at the same time, there was equivocation about the country’s future tax policies.
Furthermore, an anti-coup bill introduced by Pheu Thai MP Prayut Siripanich was withdrawn to be amended. Ultimately, the bill faced concerted opposition from coalition partners within the government.
Opposition comes from conservative parties with low public support, while tax reform discussions continue
The bill set out to make such acts illegal and provide additional power to a sitting Prime Minister to prevent them. Indeed, afterwards, the Royal Thai Army’s top brass appeared to express no concerns about the withdrawn law.
Ironically, the opposition came from conservative political parties with very low levels of wider public support. Although later denied, the late participation of Deputy Prime Minister Anutin Charnvirakul at last Wednesday’s cabinet meeting was also noted. Mr Anutin is the leader of the Bhumjaithai Party.
However, another significant step by that cabinet saw a 15% minimum tax for corporate players agreed upon. This new tax applies to large multinationals with a turnover over $750 million. It was another step towards Thailand joining the ranks of the Organisation for Economic Co-operation and Development (OECD).
The move is part of a range of measures the government has agreed with the OECD. It follows a roadmap drawn up by the Paris-based international organization in June. In short, Thailand is hoping to become a full-fledged member of the OECD.
Founded in 1961 with the United States, Canada and Western European countries as initial members, the organization is committed to raising living standards and the social well-being of people around the world. Beginning with 18 members, it presently has 38. Costa Rica was the last new member in 2021. In the meantime, South Korea, Hungary, and Poland joined its ranks in 1996.
Thailand hopes to join the OECD but faces challenges, including its informal economy and corruption
Certainly, although BRICS members Brazil, China, and South Africa are associates, they are not members. Indeed, the organization is seen as a Western model for governance. In Asia, its two members are Japan and South Korea.
This year, Indonesia became the first Southeast Asian country to apply, followed by Thailand. To be fully admitted, other member states must agree unanimously. At this time, Thailand is formally a candidate country.
For Thailand, the OECD is pushing for an end to the country’s informal economy, more emphasis on the green transition, a more inclusive society with higher taxes for the wealthy, and less dependency on trade and exports. At the same time, the Paris-based economic organization has pushed for higher education standards. In addition, it aims for a higher standard of living for workers.
Undeniably, full membership in the OECD would make Thailand a far stronger candidate for international investment. Nonetheless, the climb to achieve this is extremely steep. Thailand faces many challenges that presently appear to be insurmountable.
OECD behind foreign resident taxation reform, as expats escpape to Thailand moving away from a high-cost model
Certainly, the OECD is behind the move last year to tax foreign residents in Thailand. In short, the country has been seen as an escape option for many retirees and Western taxpayers who have moved from OECD countries in the past.
Notably, the society and lifestyle that OECD countries foster are ones with a higher cost of living, comparatively higher regulation and taxation. Therefore, many expatriates or retirees who choose to live in Thailand have deliberately moved away from this model—in short, a highly geared mode of living.
At the same time, for Thai political leaders, a Western-style economy is what young Thais aspire to. Certainly, this is true and is the reason for the rise of progressive politics in Thailand.
For Thais, this economy and society would be less dependent on foreign tourism. The latter is intrinsic to Thailand’s economy presently.
Challenges for Thailand in joining the OECD also extend to education, the rule of law and inclusivity
Key challenges facing Thailand in joining the OECD are, of course, the country’s chronic corruption problem. Undoubtedly, the rule of law is an overriding value of the OECD. For instance, the country’s history of coup d’états weighs heavily against its accession to the world body.
In addition, a study by the OECD has further noted the low cost of carbon in Thailand as an outlying characteristic of its economy. This is similar to the high level of informal workers in Thailand’s economy. In part, Thailand’s low cost of living is built upon the country’s traditional abundance of food.
Conceivably, it may be that Thailand is not a country suited to the OECD model. One key reason may be its tradition and cultural norms, as well as the nature of the economy it has fostered. Of course, this would be seen as reactionary thinking by young, educated Thais who envision the country holding its own as a modern democracy.
Growth of a regulated economy may impede Thailand’s progress; a lower tax burden leads to a public debt rise
Certainly, these could be crucial breaking points for economic planners. Indeed, there is evidence to suggest that the growth of Thailand’s regulated or state-controlled economy may be linked to lower or retarded growth.
For instance, OECD data shows that in 2005, approximately 71% of people over 15 worked in the informal sector in Thailand. At the same time, the figure for the 25–39-year-old age group was 70%. By 2022, the overall figure had fallen to 51%, while the figure for the 25–39 age group was just 32%. Presently, the OECD wants to bring all workers under government regulation.
In the meantime, while the Thai economy may post growth of 3% this year, the overall taxation burden has fallen from 16% in 2021 to 14% at this time. Concurrently, Thailand’s public debt level has risen from 61% of GDP to 64.02% at the end of August.
In addition to corruption and concerns about the rule of law, another significant impediment to OECD membership is the country’s education system. The OECD publishes annual PISA scores in academic assessment. The latest data showed Thailand’s overall score had fallen since 2018. The kingdom came in 63rd out of 79 countries.
In mathematics, Thailand’s 15-year-olds scored 294 points in contrast to 419 in 2018. The OECD average was 471. Furthermore, in reading, it fell from 429 to 379, with an OECD average of 476.
Tax reform, carbon taxes, and social support central to OECD roadmap for Thailand’s membership
In the meantime, the government appears to be focused on tax changes to show progress in its ‘roadmap’ agreed with the OECD. This roadmap also includes more carbon taxes related to climate change. In addition, it pushes stronger social support for the elderly and less well-off.
This comes following the withdrawal by Minister of Finance Pichai Chunhavajira of a proposed rise in VAT from 7% to 15%. The move was bluntly and publicly shot down by Prime Minister Paetongtarn Shinawatra. In brief, the government is facing the prospect of a divided cabinet and potential street protests.
Undoubtedly, all is not well within the present government. The visionary and dynamic personality of former Premier Thaksin Shinawatra is at odds with the pedestrian mode of rule seen previously when General Prayut Chan-o-cha was in charge. In particular, given that Pheu Thai and the conservative United Thai Nation (Ruam Thai Sang Chart) Party and Bhumjaithai Party are not well-matched partners.
However, in the OECD’s plan for Thailand is a recommendation that VAT be at least raised back to its former level of 10%. This was reduced temporarily in 1992, and successive governments have kept it at this level.
Government considers 15-15-15 tax reform proposal, amid calls for clarification from the opposition
Reports in Bangkok this week suggest the government was playing around with a 15-15-15 proposal to reduce corporate tax and income tax to a flat rate of 15% while increasing VAT or a tax on expenditure.
Certainly, this would bring in more revenue for the government through the VAT rate change. On the other hand, the new tax rate on profits and income would attract foreign investors.
In the meantime, the opposition People’s Party is calling on the government to clarify its taxation policy. Firebrand People’s Party MP Sirikanya Tansakul was quick to pounce on the indecision this week. Ms. Sirikanya has been a thorn in the side of both Srettha Thavisin’s government and now Ms. Paetongtarn Shinawatra’s. Appearing alongside her party leader Mr. Nattapong Ruangpanyawut, she called for answers.
She warned against a reduction in Thailand’s corporate tax rate to 15% and a flat income tax rate of 15%. In brief, this would severely impact workers earning less than ฿300,000 per annum.
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“That’s why I’m totally confused whether this idea will really help the state generate more tax revenues while having the least impact on members of the public, as promised,” she said. “And if the government really isn’t aware of this estimated substantial revenue loss, why on earth is it considering raising VAT?”
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