Reforming Thai Taxes Using Technology: Thailand's Final Solution (Part 1)

I have previously written a tax reform proposal for listed companies to use E-Tax Filing and E-Invoice for listed companies and their trading partners to create transparency and generate revenue for the government in exchange for benefits received from the previous government.

This article is divided into two parts (November and December editions) detailing proposals for using technology to reform Thailand's tax structure. As someone with experience and involvement in proposing ideas for tax reform in Thailand over the past 30 years, in various situations, it appears that Thailand's reform plans have never been able to be implemented because they are stuck with political policies in each era that have made them afraid to implement them for fear of losing popularity.

And now that the government has set a four-month deadline to create a "Big Quick Win," hope for tax reform has resurfaced. While it may not yet be a light at the end of the tunnel, as a Thai citizen and someone with aspirations for tax reform in Thailand, I'd like to offer another suggestion. This time, we have a Deputy Prime Minister and Finance Minister as a neutral figure, one of the most knowledgeable tax experts in the country. He's also using technology to assist in various matters, so he can implement tax reform by building new houses, not patching up old ones like in the past. He'll use technology to create a new tax structure for Thailand.

Current tax collection situation in Thailand

Currently, Thailand's main source of government revenue comes from taxes, accounting for nearly 90% of total government revenue. In fiscal year 2567, the top tax revenue source was Value Added Tax (VAT), collecting approximately 922,702 billion baht, followed by corporate income tax at 783,179 billion baht, and personal income tax at 415,664 billion baht.

It was also found that some tax categories fell short of their targets. For example, corporate income tax collection in 2567 fell short of the target by 28,000 billion baht, reflecting the incomplete revenue collection potential. When comparing the tax-to-economic size ratio, Thailand's tax collection was only approximately 16% of GDP, which is low compared to upper-middle-income countries, which average 18% of GDP, and even lower than developed OECD countries, which average 24% of GDP.

In the past, during the 2530s and 2540s, Thailand used to collect taxes higher than the average of 18.3% of GDP, but this has now decreased to 15.2% in 2567. This trend reflects that the Thai government is collecting revenue below its potential of approximately 3 to 5% of GDP, which will result in a weak fiscal position, with revenue not sufficient to cover expenses, resulting in chronic budget deficits (in 2567, the deficit is 2.08 billion baht).

The government therefore needs to expand its tax base, both for individuals and corporations, to enhance long-term fiscal sustainability. Expanding the tax base will not be possible unless the government can reform the Thai tax structure. This requires radical tax reform, or dismantling the existing tax system and rebuilding it, using technology. This is not the patchwork approach that has been followed in the past.

Over the past 30 years, Thailand has undergone major tax reforms since the introduction of the Value Added Tax (VAT) in 2535. Since then, there has been little reform of the Thai tax structure, and in the past, there was no technology to create the same efficiency and transparency as today.

Low taxpayer numbers : The number of personal income taxpayers in Thailand is very small compared to the total population and workforce. Currently, only about 11 million people file personal income tax returns nationwide, and only 4 million pay taxes, out of a population of more than 70 million (about 38 million in the workforce), means that most people are not properly included in the tax system.

Furthermore, a 2567 survey by the National Economic and Social Development Board and the Social Development Research Center among a sample of people aged 25 and over found that more than half (50.5%) of those who should have filed taxes did not, despite reaching the threshold income, reflecting the problem of a large number of people falling out of the tax system.

Regarding the juristic persons with over 900,000 companies registered with the Ministry of Commerce, only 300,000 companies still pay corporate income tax, with only over 100,000 still paying. Over 800 companies listed on the stock exchange pay over 30% of total corporate income tax to the government. Therefore, consideration must be given to how to encourage these juristic persons to file their taxes correctly, rather than maintaining two sets of accounts. Although the Bank of Thailand has previously implemented a policy requiring commercial banks to consider loan applications based on financial statements submitted to the Revenue Department, rather than relying on unofficial financial statements, this has not been successful.

Tax structure and tax rates : The Thai tax system uses progressive rates for personal income tax ranging from 5% to 35% and corporate tax at 20%. VAT is stipulated by law at 10%, but the Thai government has used a reduced rate of 7% since the law was enacted until the 2540 economic crisis to stimulate the economy, and has extended this rate to the present. Compared to other countries, Thailand's VAT is low: Singapore's is 9% and many European countries are 20%. Maintaining a low VAT reduces the burden on citizens, but it also limits government revenue collection. Increasing VAT to approach the 10% ceiling or higher would increase national revenue, but it is a sensitive political issue that the government must communicate and create understanding carefully. However, it is currently necessary for the government to collect VAT.

The government may introduce measures to assist individuals and SMEs affected by the VAT increase, using technology to transfer aid funds to wallet accounts or the government's newly developed E-Tax Payment system.

The current situation is that Thailand collects low taxes both in terms of economic proportion and in terms of the number of taxpayers. Government revenue is not enough to cover expenditures, while tax revenue is concentrated in the official sector (large corporations and consumption of value-added tax in the system). Many people and small businesses remain outside the tax system. Further analysis of the structural causes is needed to find a solution for Thailand.

Structural problems of the Thai tax base

The informal economy and liberation from the tax system : Thailand's main structural problem is its narrow tax base, with many people and businesses outside the tax system (the shadow economy). This income and trade is not fully recorded and not included in tax calculations. Informal businesses account for 47% of the country's businesses, meaning businesses that evade taxes are not included in the tax system, both individuals and corporations, and may also include illegal businesses.

Currently, the Thai Revenue Department is unable to effectively collect taxes from entrepreneurs and informal income earners, resulting in lost revenue and unfairness compared to taxpayers, whether individuals or juristic persons, who voluntarily pay taxes.

Furthermore, the Revenue Code provides tax exemptions that favor small businesses. For example, the VAT law exempts businesses with annual sales of less than 1.8 million baht from VAT registration. This has led many small businesses to deliberately limit their income to no more than 1.8 million baht to avoid paying VAT. For example, successful online sellers may cease sales or downsize their business when their sales approach 1.8 million baht. Alternatively, some businesses may split off their businesses and open multiple subsidiaries with sales exceeding the threshold instead of consolidating them into a single business.

The result is that the government is not collecting the full amount of taxes, and these businesses are also paying less income tax than they should because their income information is not included in the tax system.

Low number of personal income taxpayers and legal loopholes : As mentioned, Thailand has only 4 million personal taxpayers, partly because the minimum income threshold for tax is low (currently, incomes assessed over 120,000 baht per year require a tax return, even after deductions; anything under 150,000 baht is tax-free). However, many people don't realize that filing a return doesn't always mean paying taxes. A survey found that 65.5% of those who don't file a return misunderstood that filing a return would definitely result in a tax refund, so they avoid filing, including deductions, resulting in a partial tax refund.

Furthermore, ignorance of the law and procedures leads many to unintentionally drop out of the tax system. Surveys have found that most of these people have educations below vocational certificate/grade 6, low incomes, and unstable financial status. They are almost entirely informal workers, and thus lack tax knowledge and understanding, and lack the motivation to enter the system.

Another factor is legal and policy loopholes that allow certain high-income earners to legally avoid taxes (Tax Avoidance). This includes using large tax deductions, planning through tax loopholes, or receiving tax exemptions from various government policies, such as spending stimulus programs (such as "Shop Dee Mee Kuen") that offer tax deductions on spending, tax exemptions/reductions from investment promotions by the Board of Investment (BOI), etc.

These factors create a "policy gap," or a gap in policy that causes the government to collect less tax than it can afford. For example, high-income earners often fully utilize tax deductions to reduce their tax burden. This results in the richest 20% of the country actually paying only about 11% of their income, despite the progressive rate being as high as 35%. Meanwhile, low-income earners receive less deductions, resulting in inequality in tax burdens. Furthermore, those who earn income solely from interest and dividends may not file their taxes because they have already had their taxes withheld.

Public confidence and attitudes : Many people feel that paying taxes is more of a burden than a duty, partly because they perceive the tax system as insufficiently fair and transparent. A survey found that 75.8% of the sample group believed that the Thai personal tax system was relatively unfair. They particularly believed that the government did not thoroughly monitor high-income earners and that the wealthy avoided taxes through legal loopholes, such as setting up corporate entities that allow deductible expenses and collect a net tax rate of just 28% (including taxes, profits, and dividends) instead of the highest 35% rate for salaried individuals. The minimum income threshold for tax payment is too low and does not reflect the cost of living.

Furthermore, approximately 70% of respondents indicated they would be willing to pay taxes if their income met a certain threshold and they received enhanced welfare benefits. This indicates that many are hesitant to pay taxes because they are unsure that the government will actually use the money to improve their quality of life. This reflects a crisis of confidence that is impacting their willingness to participate in the tax system, which requires the government to have clear policies to provide various benefits to taxpayers.

Thailand faces a narrow tax base trap: a small number of taxpayers, partly due to exemption laws that keep many businesses outside the system. This also stems from a population deliberately or unintentionally avoiding the system due to a lack of knowledge or distrust of the government. As a result, the government collects taxes below global standards. Addressing this structural problem requires both policy reform (improving laws and regulations and offering benefits to those in the tax system) and procedural reform, using technology to increase collection efficiency and plug these loopholes, which I will discuss in the next section.

Using technology to increase tax collection efficiency: an important matter to consider

The application of technology in modern tax collection plays a crucial role in expanding the tax base (attracting more people and businesses into the system) and increasing efficiency (collecting accurate, complete, and transparent information). Key approaches that the government should consider include:

1. Using Big Data and AI to expand the tax base

It is understood that the Thai Revenue Department has begun using big data and artificial intelligence (AI) to analyze and track income earners outside the tax system. For example, the department currently receives money transfer transaction data from commercial banks, as well as data from online platforms (e-commerce, sales platforms), and international exchange data (OECD). This data is then combined with the existing taxpayer database using an AI system to identify those with incomes that meet the taxable threshold but have never filed a tax return. When the system identifies such at-risk groups, the Revenue Department will take proactive action, such as sending reminder letters to encourage them to file their taxes.

Preliminary results show that more than 50% of those who received the letters have filed and paid their taxes, a high success rate demonstrating that technology is effectively deterring tax evaders.

AI is also being used in other areas of the Revenue Department, such as risk analysis for tax audit planning (Risk-based audit). This involves segmenting taxpayers based on their history and behavior. If AI detects irregularities, such as unusual income growth, never filing taxes, but high turnover in savings accounts, or a company issuing a disproportionately large number of tax invoices, the system will alert officials to conduct a special investigation. This approach targets truly high-risk audits, reduces disruption to honest taxpayers, and increases the tax collection rate, making audits cost-effective and cost-effective.

International case studies include the UK's HMRC, which has developed an AI called "Connect," which collects data on nearly every aspect of people's financial transactions (from bank accounts, online sales, asset holdings, etc.) and analyzes it to identify patterns that indicate tax evasion. This demonstrates that AI and Big Data are powerful eyes and brains for expanding the tax base, catching those evading the system, and effectively narrowing the tax gap.

2. Digital system for filing and paying taxes

Digital facilitation will help encourage more taxpayers to voluntarily stay in the system. The Revenue Department has been providing e-Filing (filing via the internet) and e-Payment (paying taxes online) for some time, but it remains separate and distinct from other tax systems. In the new era, there is a "One Stop Service" approach that allows taxpayers to manage everything in one place.

For example, the Revenue Department's "One Portal One Profile" policy, currently under development, links all types of tax information together. Taxpayers simply log into a single portal and can view all their tax information (all types of tax payments, tax credits, withholding tax, donation deductions, etc.) in a comprehensive manner. In the future, the goal is to allow taxpayers to pay their taxes with a single button, significantly reducing complicated and repetitive processes.

At the same time, officials will have a single profile, allowing them to easily access the overall information of each taxpayer and quickly verify the accuracy and completeness of their tax payments. This centralized data stream will facilitate public service, increase transparency, and reduce the chances of forgetting or misrepresenting information by taxpayers themselves.

The government should introduce an e-Invoicing system to replace deductions and allowances, and companies can deduct expenses and submit taxes using Blockchain to effectively prevent tax evasion.

Convenience and transparency This is the key to making people willing to join the system. The simpler and fairer the process, the more people will see paying taxes as a normal part of life (Minimize Compliance Cost). For example, Estonia can allow citizens to complete their online tax filing in just 3 to 5 minutes because the government provides almost complete income information. Taxpayers only need to check and confirm. If Thailand can develop a system like this, it will help attract people who used to be afraid of filing taxes (because they think it's complicated and afraid of making mistakes) to be willing to try it and stay in the system in the long term.

Another example is the use of chatbots to answer tax questions 24/7, such as Nong Aree at the Revenue Department, which is currently being upgraded by incorporating AI (a model similar to ChatGPT) to answer taxpayer questions quickly and efficiently. This allows citizens to immediately solve system problems without having to give up when encountering obstacles. Digital technology can enhance tax services, creating a more satisfying experience, which indirectly incentivizes people to comply voluntarily.

3. Using blockchain (Blockchain) in managing transaction/tax payment data

Blockchain is a highly secure, transparent, and verifiable decentralized database technology. This feature is ideal for applications that require reliable tax transaction data storage, such as issuing electronic tax invoices, recording property and land information for tax calculations, or tracking trade routes to verify sales tax.

In Estonia, the government has developed the "KSI Blockchain" to protect the integrity of sensitive government data, including tax registration data. Any attempts to alter or falsify data are immediately detected by the blockchain system, ensuring the security and reliability of citizens' tax records.

In Thailand, blockchain has been used to create a central tax database that is securely shared by multiple agencies, such as the Revenue Department, Customs Department, the Land Department, and local administrative organizations like the Bangkok Metropolitan Administration (BMA). This allows for the exchange of business and property data via blockchain, or for the issuance of digital tax invoices and receipts that can be traced back to every step, reducing the problem of counterfeit invoices and fraud.

Including the problem of property taxes for local government organizations at present, it can be collected efficiently by the government sector, which is the revenue generating unit, should cooperate in using central data and the government, the Ministry of Digital Economy and Society, the Ministry of Interior, and the Ministry of Finance should cooperate in creating a central system.

One important idea for Thailand is to create a digital invoice network where every invoice issued by businesses is instantly recorded on the blockchain. This allows the Revenue Department to see sales figures in near real time, and buyers can be assured that the invoices are accurate and tax deductible. While blockchain isn't yet widely used in taxation, it's a future direction that many countries are exploring. South Korea sees potential, and there's talk of using blockchain to prevent fraud and secure e-invoice data in the future once the electronic invoice system is in place.

For Thailand, it should also study Korea's approach in parallel, perhaps by first testing it with listed companies and their trading partners, as previously proposed. The Stock Exchange of Thailand is willing to provide full cooperation and support in this matter. This will prove the benefits of accessibility. Commercial banks should also support lending to this group of companies at low interest rates.

4. System e-Invoicing and POS for VAT collection

To expand the VAT base to cover trade in the informal economy, the introduction of an electronic tax invoice system (e-Tax Invoice) and the use of point-of-sale (POS) machines that link tax data are crucial. When every sale of goods or services is automatically recorded and reported to the Revenue Department, the chances of avoiding registration or avoiding recording income are greatly reduced.

(e-Tax Invoice) System: This means that entrepreneurs issue tax invoices in digital format (XML/PDF with digital signature) instead of paper and send them to buyers and the Revenue Department simultaneously via an online system. The advantage is that transactions will be notified to the Revenue Department immediately in real time or within a specified time, allowing the government to see the sales and VAT due for each individual in a timely manner.

South Korea has been a leader in this field, enforcing real-time electronic invoicing since 2011 and expanding it to almost all businesses by 2014. All businesses with annual sales exceeding 100 million won (2.6 million baht) must invoice their products to the National Tax Service (NTS) system before or immediately after issuing invoices to customers. This means that they must be verified by a centralized system before an invoice can be sent to the buyer. This system ensures that VAT due is calculated accurately, reducing the number of fake invoices and understatements.

With severe penalties for non-compliance (up to 10 million won in fines per transaction and forfeiture of VAT deduction rights), the result is a significant narrowing of the gap between the VAT that should be collected and the actual VAT collected, demonstrating a clear increase in compliance with the law. Businesses also benefit from the convenience and speed, with invoice management 70% faster and tax reconciliation and refunds made easier, a win-win for both the public and private sectors.

POS and digital receipts for small retail and service businesses. Installing a POS terminal that issues invoices for every sale and connects the data to the Revenue Department will automatically enter small sales transactions into the tax system. This "tax meter" concept was previously discussed in Thailand's tax reform, which proposed lowering the VAT registration criteria and allowing small businesses to use POS devices to record sales instead of doing their own accounting.

South Korea has had a “Cash Receipt System (CRS)” since 2005 to address the issue of cash transactions without receipts. Customers can request a cash receipt simply by providing their identification number (such as a phone number or national ID card number). Merchants will issue the receipt via a machine registered with the CRS, and the transaction information will be sent to the Central Tax Administration database by network providers every day. Shoppers will receive tax deductions or tax refunds on the amount spent on receipts, encouraging people to demand receipts every time they pay in cash.

As a result, businesses are indirectly pressured to record actual sales, as customers demand receipts. This system significantly increases the amount of cash spent into the tax system, while also fostering a habit of receiving receipts and recording accurate income among Thais. The government's Paotang and Half-Half Plus schemes are a good starting point for incorporating them into the e-Invoice system (with benefits available to individuals requesting invoices for every transaction).

In Thailand, the Revenue Department has begun taking proactive measures. For example, starting January 1, 2565, it issued a law requiring electronic platform providers, such as online shopping platforms, to report seller and sales data on their platforms to the Revenue Department. This marks the first step in bringing online businesses, mostly small businesses, into the tax base, with quantitative results expected to be seen next year.

The Ministry of Finance is also exploring the concept of "Micro VAT," which involves collecting a small flat rate (e.g., 1%) from businesses with annual revenues below 1.8 million baht, which were previously exempt from VAT. This concept was originally supported by a provision in the Revenue Code, Section 80/2, which stipulates a flat rate of 2.5%. However, a royal decree has reduced this to 1.5%, but it has never been implemented in earnest. Reviving "Micro VAT" would likely bring an estimated 100,000 small businesses into the tax system and potentially increase VAT revenue by approximately 4,000 billion baht per year.

Importantly, this approach closes a loophole, preventing small businesses from having to cap their business growth for fear of being suddenly forced to jump from 0% VAT to 7% VAT if sales exceed 1.8 million baht. Even a small amount of VAT is charged at 1%, which isn't a significant burden. Furthermore, they benefit from being in the system, such as issuing invoices to customers to enable business expansion. As their business grows, they'll be ready to seamlessly transition to the normal VAT rate.

In summary, technology can help in many aspects of tax collection, from finding evaders with Big Data/AI, facilitating taxpayers with one-stop online services, maintaining data accuracy and reliability with blockchain, to enforcement through e-Invoice/POS systems that record sales in real time.

All of these share the common goal of increasing the number of taxpayers in the system and expanding the tax base, particularly VAT, to cover all economic sectors. This will reduce the burden on the small group of people who are currently burdened by the entire nation's taxes, and create a more just, transparent, and efficient tax system.

Stay tuned for the final episode next month, which will feature international case studies and policy proposals for Thailand and how to drive tax reform with technology.

Note:: The above article has been compiled by the author. The AI ​​of ChatGPT, Copilot and Perplexity cited the following sources:

• Thai PBS. Assoc. Prof. Athipat Mutitajaroen. (2565). "Taxes are inevitable." Why must everyone pay taxes? The Active –
• (2567). 'Kulya Tantitemit', Director-General of the Revenue Department, promotes "SMILE RD" to expand Big Data to expand the tax base both vertically and horizontally.
• (2568). Revive the 'Micro VAT' system, expecting an increase in income of 4,000 million, hoping to expand the personal income base.
• iTAX Media. (2567). Minister of Finance proposes tax reform, VAT increase and income tax reduction.
• (2024). Guide to IRAS'Auto-Inclusion Scheme-Singapore
• European Commission. (2019). Estonian electronic tax filing system (E-Tax)
• (2023). E-invoicing in South Korea: The e-Tax Invoice System
• Kostiainen & Satria (2020). A Roadmap for Digitalization of Tax Systems: Lessons from Korea. IDB