Finance Minister Pichai Chunhavajira has proposed increasing the value-added tax (VAT) while simultaneously reducing corporate and personal income tax rates. This initiative aims to bolster state revenue, promote national development, enhance competitiveness, and address domestic inequalities.
The Organisation for Economic Co-operation and Development (OECD) has established guidelines mandating that all businesses pay at least a 15% corporate income tax. In Thailand, while the current corporate tax rate stands at 20%, Minister Pichai emphasized the need to lower it to 15% to maintain global competitiveness during his address at the Sustainability Forum 2025.
Regarding personal income tax, Pichai noted stiff competition to attract skilled workers, as many nations have lowered their tax rates while Thailand still levies a maximum of 35% on high earners. Ministry officials are exploring the implementation of a flat 15% personal income tax rate to entice foreign professionals.
However, Pichai pointed out that Thailand’s personal income tax base is relatively low, whereas the consumption tax base is high and requires adjustment. The current VAT rate is 7%, and although the law allows for it to be raised to 10%, successive governments have kept it static, unlike many other countries where VAT rates typically range from 15% to 25%. He remarked, “Consumption taxes are sensitive, but a reasonable increase could aid low-income individuals by narrowing the wealth gap.”
He explained that a lower tax rate means reduced contributions from all, resulting in lower total revenue. Conversely, increasing the rate would ensure wealthier individuals contribute more based on their spending, ultimately raising funds that could assist low-income populations and enhance infrastructure.
On monetary and fiscal policies, Pichai stated that monetary policy should support the private sector and lower living costs, while fiscal strategies should raise revenue to combat social inequality and stimulate economic growth. He indicated that current global shifts, including climate change and geopolitical tensions, create an advantageous environment for domestic investment.
Thailand is gaining interest from investors, particularly from the US and China, due to its strategic location and favorable demographics. Pichai highlighted that investment in Thailand has faced a downturn in the last 20 years, currently around 20% of GDP, compared to nearly 40% during peak periods. However, there has been a resurgence in investment interest, especially in sustainability-focused sectors like green energy.
He noted that in the past nine months, projects worth approximately 700 billion baht have been approved by the Board of Investment, and projections indicate this could reach 1 trillion baht by year-end— the highest in decades. Pichai emphasized that the government’s priority is structural reform, with monetary policy keeping interest rates low to encourage investment.
While lower interest rates could potentially lead to inflationary pressures, he predicted inflation this year to remain below 1%, creating a window for the Bank of Thailand to lower interest rates further. In October, the central bank unexpectedly reduced its key rate by a quarter-point to 2.25%, though additional cuts before the year ends seem unlikely.
Minister Pichai also discussed efforts to weaken the baht, acknowledging the challenge posed by increasing confidence in the economy resulting in a strong local currency. He suggested managing this by transferring international reserves, a tactic employed by other nations, to help gradually weaken the baht.
Regarding fiscal policy, Pichai asserted that the government should support growth, which may entail higher public debt. Thailand’s public debt has escalated from $4.8 trillion nine years ago to $12 trillion today; however, he emphasized that the focus should be on repayment capacity rather than the level of debt itself. He acknowledged the high budget deficit of over 4% of GDP in recent years but stated that for a growing economy, a deficit of up to 3.75% can be deemed acceptable.
Pichai indicated that if GDP growth reaches 4-5%, the deficit could rise to 4.2%. The government is focused on promoting GDP growth, ensuring that both monetary and fiscal policies align with this goal. He also cautioned about the necessity of increasing savings, particularly as Thailand faces an aging population. While savings exist from social security and provident funds, these are expected to diminish rapidly once individuals retire, posing a potential future crisis.
