Taxing damage
Re: "PM to outline digital handout", (BP, Nov 10) & "New tax rules need clarification", (Editorial, Oct 8).
Although financial analysts and rating agencies focus on the merits of the proposed stimulus and debate its enormity and whether or not it is funded, it is perhaps more useful to focus on the merits and sustainability of fiscal policies being pursued in the name of funding the stimulus.
Prime Minister Srettha Thavisin has already announced that tax collection will form the backbone of the stimulus funding. A sweeping review of inheritance, land and building tax is underway, and a change to taxation on foreign income has been announced.
To many analysts and ratings agencies, such policies seem reasonable. Their concern is whether or not sufficient funds can be raised. It is for policymakers to debate and assess the long-term merits and dangers of the funding policies being proposed.
On close inspection, the proposed change to tax on foreign income does not appear to be a good policy for Thailand. It risks disrupting foreign currency inflows, the lifeblood of Thailand's export-based economy. Tax residents will no longer remit funds freely. They simply will not remit funds to avoid tax, or remit to take advantage of lower tax thresholds, etc.
More concerning, perhaps, is the damage the policy will likely cause to Thailand's long-stay visa programmes, which have taken decades to establish and are an important source of foreign currency inflows and foreign investment. If Thailand chooses to proceed with the tax change, the likelihood is that potential long-stay visitors will simply choose other destinations.
Those who do opt for a long stay are likely to remit fewer funds to avoid costly interactions with the Thai Revenue Department. Long-stay foreigners now residing in Thailand may choose to leave, together with their funds and spending. Not to mention the permanent damage that will be done to Thailand's reputation as a major retirement and mobility hub.
The obvious shortfalls of the policy to tax foreign income raise serious questions as to what the prime minister had in mind when he chose to move ahead with it. Had he carefully considered all the policy's impacts? Did he examine practices in neighbouring countries (Singapore and Hong Kong) and countries offering foreign residency schemes? Did he ask why many of these other countries explicitly exempt individuals from tax on foreign income? Did he consider whether it was in the national interest likewise to exempt individual taxpayers or at least long-stay foreigners with no work permits? Most importantly, did he take the time to debate these fully and other questions with independent experts and his cabinet colleagues to gain a clear consensus?
In moving ahead with a potentially flawed and harmful policy, it may raise the possibility the prime minister did so chiefly to improve the revenue projections needed for the proposed stimulus and not on the basis of good policy.
If funding policies for the stimulus are adopted on this basis, it may well be that revenue targets to fund the proposed stimulus are met. However, this may damage Thailand's economy and prosperity in the longer term.
M P Foscolos
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