Who benefits from changes in PIT law
Throughout last year, the Government was expected to amend the personal income tax law, increasing deductions and reducing the personal income tax (PIT) rates and make said amendments effective starting in the 2016 but this failed to materialize. However, in February 2016, the Thai government announced that the reduction in the progressive PIT rates would be extended to the 2016 tax year with Royal Decree no. 600. These are the same PIT rates which were initially reduced temporarily in 2013 and were extended each year, so this Royal Decree merely provides an extension of these rates.
Better news came in April 2016, when the Thai Cabinet approved the Ministry of Finance's proposal to amend PIT law, which would be a big shift, as the last amendment was some 25 years ago. The major changes in the PIT law include an increase of the standard expense deduction from 40%, but not exceeding THB 60,000, to 50%, but not exceeding THB 100,000, for employment income (Section 40(1) and (2)) and for income from copyright, goodwill and other rights (Section 40(3)).
In addition, the personal allowance for a taxpayer and spouse will be increased from THB 30,000 to THB 60,000 each. Further the child allowance will be increased from THB 15,000 per each child up to 3 children to THB 30,000 with no limit on the children number. Under this proposal, the allowance for child's education allowance of THB 2,000 per child will be cancelled so a taxpayer who has a child in school will get additional child deduction of THB 13,000 instead of THB 15,000 per child. Looking at the increased amount of expenses and allowance deductions, the changes may not be much for a high-income earner but a low or middle income earner should benefit from these changes.
Under the new proposal, a single taxpayer who has employment income of less than THB 26,000 per month will not have income tax liability, compared to existing law where a single taxpayer will start paying PIT if income exceeds THB 20,000 per month. Note that the tax exemption for annual wage income below THB 150,000 remains in place; this effectively adds a 0 percent rate on wages below THB 150,000. The change includes the expansion of tax base subject to 30% which applies to taxable income over THB 2 million but not over THB 4 million to be not over THB 5 million. Thus the top rate 35% will apply to taxable income which is greater than THB 5 million instead of the THB 4 million under the existing PIT rates. This will benefit high-income earners who will save up to THB 50,000 in tax. It is planned that this proposed change will be effective starting from the 2017 tax year onward.
Although the proposed changes may not seem revolutionary, this is still exciting news as there has been no adjustment in the expenses and allowance deductions for the last 25 years. However the Thai government may still need to take notes from the PIT laws of neighboring ASEAN countries and consider further reductions of PIT rates in order to enhance Thailand’s competitiveness in light of the AEC's free flow of labor. Currently, Thailand's PIT rates are on the high side among ASEAN members.
© 2017 KPMG Phoomchai Tax Ltd., a Thailand limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.