Apr 2, 2013

Thailand - Thailand can handle huge infrastructure debt

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Thailand is fully capable of financing the large debt that will arise from its plan to spend 2 trillion baht (US$6.8 billion) on infrastructure projects, thanks to the buoyant economic outlook and recent tax-restructuring efforts, the chief of the Finance Ministry's Fiscal Policy Office (FPO) has said.

Responding to criticism of the government's plan to borrow 2 trillion baht to fund infrastructure projects, which last week won House approval, FPO director-general Somchai Sujjapongse said last week that government revenue is set to rise in light of new investment.

Opposition MPs criticised the government for incurring massing debts for the country. Including interest, the total debt burden from the investment would be 5 trillion baht.

According to Somchai, the FPO estimated that the investment in infrastructure projects in the next seven years would add another 1 percentage point per annum to the expected average gross domestic product growth of 4.5 per cent in the coming years. This extra growth will generate additional government revenue of 40 billion baht per year.

However, the revenue increase would not occur unless there was investment in these projects. The faster the investment, the sooner the pay-off, he said.

Another factor that will boost the country's revenue is the recent reduction of corporate tax to 20 per cent, which has enhanced the competitiveness of Thai companies, boosting their profit and enabling them to expand.

The lower corporate income tax will draw in massive foreign investment, which will further broaden the country's corporate income tax base, Somchai said. Despite the tax reduction, it is hoped that in the medium and long term, the revenue from corporate income tax would not fall but increase, he added.

He cited a Revenue Department report that corporate income tax revenue had in fact expanded, indicating that Thai companies have made more investments.

Domestic consumption has continued to grow. Though the value-added tax (VAT) rate has been maintained at 7 per cent, VAT revenue would increase, thanks to continued high domestic consumption. Part of this revenue would be used as government expenditure and the rest for paying debt of the 2 trillion baht borrowing.

It is estimated that the government will incur total debt 5 trillion baht, of which 2 trillion baht is principal and the rest interest. It has a plan to completely service the total debt within 50 years.

Somchai said it was certain that at some point the government would raise the VAT rate. The rate would not remain at 7 per cent over the next seven years, but the precise rate hike would depend on the economic situation and whether the government needs to use VAT income as its main revenue. When the economic situation picks up, people would be ready to afford a higher VAT rate. A rise in the VAT rate by 1 percentage point would generate additional income for the government of 50 billion baht per year.

"The appropriate time to raise VAT is whenever the country achieves a balanced budget or low budget deficit, as in that time people are expected to be able to accept it. We'll raise the rate by just a little, such as 1 per cent, to generate revenue for economic development and for paying down debt," he added.

He said the excise tax is one of the government's primary sources of income. If the government raised the diesel excise tax, it could gain additional revenue of 100 billion baht per year. The government would take that step when economic conditions were favourable, Somchai said, adding that there were many other excise tools that could be used to generate more income. Customs tax may be lowered further, he said, adding that this would boost trade and investment.

The Thai economy would not stay flat but would expand following investment in the 2-trillion baht worth of projects, Somchai said.

*US$1=29.5 baht

Suphannee Pootpisut

The Nation

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