Thailand Tax Policy: Multinational Digital Firms

Thailand's Tax Policy: Multinational Digital Firms

• Subsidiaries of multinational digital firms in Thailand often handle marketing or support
• This limits the taxable income reported in Thailand
• Meaning Thailand cannot fully tax these firms' activities, leading to revenue loss
• These firms interact by offering services, but payments are processed abroad
• Revenue doesn't flow through the Thai subsidiary
• Reducing the taxable income Thailand can claim
• Existing tax laws are designed for traditional businesses with physical presence
• Lacking rules for digital businesses causes revenue loss
• A digital services tax could target revenue from digital services within Thailand
• Revising transfer pricing rules could ensure fair profit allocation and taxation
• Current tax policy is not fully effective because of firm structure and regulation
• Reforms are necessary for fair taxation, contributing to the Thai economy
• This challenge is global due to difficulties in taxing digital firms effectively

Tax Structures: South Korea vs. Thailand (1990-2019)

• South Korea uses a combination of income, consumption, and other taxes
• Creates balance and avoids reliance on a single tax source
• South Korea: Income taxes indicate a progressive system with wealth redistribution
• By funding social programs, equitable economic growth is supported
• This ensures all segments of society benefit from economic progress
• Thailand relies heavily on Value Added Tax (VAT), a consumption tax at all stages
• VAT is regressive, taking a larger percentage from lower-income individuals
• It affects all regardless of income level, disproportionately impacting lower earners
• The reliance on VAT may limit economic development by increasing inequality
• It limits consumer spending, as lower-income individuals have less income
• South Korea's structure supports equitable growth and a stable economy
• Thailand's VAT reliance may hinder inclusive development due to inequality

Thailand's Informal Economy: Tax Implications

• Informal economy refers to unregulated and unreported economic activities
• This includes street vendors, small-scale artisans, and unregistered businesses
• The Thai formal tax system does not account for these activities
• Resulting in a narrower tax base and reduced revenue generation for the government
• Regulatory Frameworks: Informal businesses operate outside regulatory frameworks
• Tax Collection: Lack of records and registration limits tax colleciton
• Reduced tax base limits the governments ability to fund healthcare and education
• Lack of revenue can lead to deficits, forcing the country to borrow
• Reliance on Indirect Taxes: Might rely on VAT to compensate which is regressive
• Taxes can disproportionately negatively affect low-income individuals
• Limits govenments effective of collecting needed adequate revenue

Thailand: Public Debt Impact (Exceeding 70% of GDP by 2028)

• The government may need to raise taxes to generate revenue for debt servicing
• This could involve increasing existing taxes or introducing new taxes
• Higher taxes reduce disposable income, slowing down economic growth
• Government might reduce spending on public services and infrastructure projects
• Reduced investment hinders long-term economic development and quality of life
• Austerity measures could include cutting subsidies or limiting welfare programs
• Social Impact: Austerity measures disproportionately affect lower-income groups
• High debt levels can make investors wary and increase governmnet borrowing costs
• FDI can be impacted as foreign investor may not want to invest in a country with high debt levles
• Reduced government spending and decreased confidence can slow economic growth
• If economic slows harder to generate revenue needed to serive debt

Thailand's Fiscal Deficits (2014-2023)

• Thailand's fiscal deficits have increased, reaching as high as -4.6% of GDP.
• The data contradicts the statement, showing an increase in fiscal deficits

Tax Expenditure in Thailand (Distribution)

• Almost 70% of total tax expenditure benefits the top quintile, not bottom
• Tax benefits are skewed towards wealthiest segment of the population

Income Tax Revenue in Thailand: Source

• The majority of Thailand's personal income tax comes salaried workers
• Most of tax revenue is collected from salaried workers, not non-salaried

Government Expenditure Thailand: 2004-2023

• Thailand's government expenditure increased as a percentage of GDP
• Government expenditure averaged 17.5% from 2004-2013 and 17.7% from 2014-2023

Thailand's Revenue & Similar Countries

• Thailand's tax revenue was 16.1% of GDP in 2019
• Tax revenue for upper middle income countries was 18.4% of GDP
• Implying a lower tax burden or less efficient tax collection

Principles for an Effective Tax System:

• Generates enough revenue to fund government services and obligations
• Minimizes economic distortions, avoiding discouragement of work or investment
• Equitability in taxation: Horizontal Equity: Taxpayers with similar situations that pay similar taxes.
• Equity in taxation: Vertical Equity: Taxpayers with higher incomes should higher taxes.
• Simplicity: Easy for taxpayers to understand, reducing compliance costs.

Government Revenue:

• Governmnet Revenue averaged 17.2% from 2004-2013
• Average dropped in the later period to 15.6% suggesting decreases in revenue collection
• Could potential affect government funding for programs

Value Added Tax (VAT) In Thailand: 2021

• Accounts for 31% of Thailand's revenue and over one-thired of country's total incom
• Indirect tax applied at each stage is ultimately born by end conumer. The reliance can ffect consumer prices and spending

Tax Planning: Thai Sweetened Beverages

• Aims to reduce sugar consumption by raising prices on high-sugar drinks
• Increases over time, taxing high-sugar content drinks more heavily
• Gradual increases will result in decreased demand
• Promoting Healthier consumption habits

Taxes: Avoidance vs. Evasion

• Tax Avoidance legally use the tax regime for advantage.
• Tax Evasion involves deceit, subterfuge, to conceal information to reduce liability. Legal Consequences: Severe

Tax Avoidance/Evasion Case Analysis:

• Contributing to a Retirement Mutual Fund (RMF): Tax Avoidance
• Misrepresenting tuition payments as donations: Tax Evason
• Shifting revenue to a different tax period: Follows guidelines therefore Avoidance
• Issuing receipts under different names: Tax Evasion.

Economic Substance Test: Tax Strategy Analysis

• A test used to determine whther the transaction has legitimate business purpose beyond obtaining tax benefits
• Substantial business purpose and not just reduce taxes
• The transaction should reflect genuine activities, and not just be a paper one. Failing this test increases company tax liabilities and regulatory legal risks

South Korea Income & Economic Activity

• As income inreases taxes are progressively increasingly higher
• Shifts income more effectively
• The strategy contributes and shifts the equity wealth

Personal Income Tax in Thailand

• Brackets for each specific rate vary.
• Tax Brackets increase as an individual has more income.
• Deferring Income or splitting Income Regulatory Compliance- non-compliance equals tax evasion Future Tax Rates- can change when incme has been set already therefore resulting in even higher taxes

Changes in Tax Treatment (2016 vs. 2017)

• The range for tax rates was between 2,000,001-4,000,00 baht in 2016
• In 2017 Tax Schedules it was between 2,000,001-5,000,000 baht
• Key Change: Higher threshold for the 30% tax rate.

Tax Avoidance

• Legal & used to minimize taxes Tax Evasion
• Illegeal and used with falisifying information

Impact on Income: Thailand Sweeten Bevs

• Price increases/decreases for what consumer is willing to pay to the quantiity the demander/willing to accept

Consider Three Types of Incomes

1 Shift income from one type ot anotehr

• Convert to capital gains which have lower rates Shift if income increases but still must have a strategy

Three Incidences of Tax: Supply, Supply, Elastic

Three incidence

Distributing a Tax

• Consumers more elastic less quantity
• Producer will not have as bad

Analayzing the Impacting the Gov: a high inelastic is a good economy because minimum impact with quantitiy but high impact with economic development

The statuatory Incidence of tax

• Legal obligation -Relative and Elasticity
• Consumers bare burden because not responsive

The effectiveness

• is dependent because effective, and generates minimum

Anaylze: what does effect: it is less if they dont, and consumers less is more what is needed to be done

What tax does on carbo exissions

More expensve , the more you save on alternative and revent

Explain tax a good: if an individual is highly related or not

Discuss data that are in quintiles with thai

Those data means not all people can afford the ltf

Economic in thaialnd: what this could lead

If you work harder and get an extra income could benefit that to help If the money is just taxed less will It all must balance better and well

Tax on alchol:

Not much change

Marginal Value: of what your work is about

If a lot to do then tax will be higher; however, if not as minmal

How Taxes Effcets

• If people work less
• They will be more likely to ask to do less
• What to measure before is important

Look at Taik in Thai

More is work done more pay out Income changes, changes lesuire to take pay

• The amont of how much that has been done the more or less the work can affect

Hag Definition

• Should reflect all changes for something to be as accurate as possible

Look for tax benefit:

To get as a taxpayer and government

• For everything you do with tax

Equity

• Equity is the idea that when you dont pay to the equal

Thailand

• Is the primary to tax what it is for other
• If your not you dont really pay

In Thailand for Personal taxes

• Most is salary as it is the primary one and people cannot get around

1 Analyze Thailand

• There would need to more changes and this does effect people
• Need to check how it affects their savings

More

• This is important to know and is true
• Does a lot for the tax
• The rule does a guideline to do taxes

Thai Government

• Makes policy to pay less

Thai Taxes: more more

But people cannot avoid

To analyze this all: what do all three types

• Need to see who, why, and what type They cant do it right if they dont go through all

To analyze all of three:

who, what and why They cant avoid if they dont have it all