Thailand’s Innovative Tax Scheme Benefits Low-Income Earners
In a bold move to support low-income earners, Thailand has introduced an innovative tax scheme known as the negative income tax (NIT) initiative. The scheme, championed by Finance Permanent Secretary Lavaron Sangsnit, aims to provide welfare payments to workers whose income falls below a certain threshold, in a bid to incentivize employment and offer crucial financial support.
Workfare: Encouraging Employment and Financial Support
The NIT scheme, also referred to as “workfare,” is designed to encourage people to stay employed by guaranteeing state welfare payments if their income dips below a set minimum. Lavaron Sangsnit emphasizes that the NIT system is not just about providing welfare but rather about promoting workfare, where individuals must be actively employed to receive higher benefits from the government.
Under the NIT scheme, the government will step in to top up the wages of those earning below the minimum threshold, ensuring that they meet their financial needs. For the unemployed, some assistance may be provided, although it will not be as generous as the support given to those who are actively employed. This approach aims to support individuals in maintaining their employment status while also providing a safety net for those facing financial challenges.
Reducing Welfare Expenses and Eliminating Redundancies
Lavaron Sangsnit believes that implementing the NIT scheme could lead to a reduction in state welfare expenses and eliminate redundancies in the current welfare system. With around 20 welfare programs in place, such as the state welfare card, costing up to 50 billion baht annually, there is a need for a more efficient and targeted approach to welfare provision. The NIT scheme offers a potential solution to streamline welfare support and ensure that resources are allocated effectively.
Qualifying for Workfare: Income Verification and Support Phases
To qualify for workfare under the NIT scheme, individuals would need to submit their annual personal income tax forms to the Revenue Department for income eligibility verification. As a recipient’s income increases, the state would provide additional support in a phase referred to as “phase in.” Once an individual’s income reaches a certain level, the state’s support rate becomes constant. If the income surpasses the minimum threshold, the government would cease its support, ensuring that resources are directed to those most in need.
A Decade-Long Proposal: The Evolution of the NIT Concept
The NIT concept was initially proposed by the Fiscal Policy Office a decade ago, reflecting a long-standing effort to reform the welfare system in Thailand. Unlike traditional welfare programs where individuals may receive state benefits without being actively employed, the NIT scheme requires participants to be part of the tax system and engaged in gainful employment. This approach not only promotes workforce participation but also ensures that resources are targeted towards those who are contributing to the economy.
Challenges in Government Expenditure: Addressing Rising Costs
Lavaron Sangsnit highlights the challenges faced by the government in managing its expenditure, particularly in areas that are considered “hard to reduce.” In fiscal 2023, expenditures in this category totaled 2.13 trillion baht, accounting for 67.2% of the government’s budget, up from 65.8% in fiscal 2022. This increase is attributed to spending on debt repayment, commitments, and rising welfare costs for public personnel and elderly citizens.
While the proportion of spending on salaries, contributions, and compensation for public personnel has slightly decreased, there is a growing need to address the rising costs associated with welfare support. The NIT scheme offers a potential solution to manage welfare expenses more effectively and ensure that resources are directed towards supporting those in need while promoting workforce participation.
Conclusion
Thailand’s innovative tax scheme, the negative income tax (NIT) initiative, represents a game-changing approach to supporting low-income earners and promoting workforce participation. By incentivizing employment through workfare and providing crucial financial support to those in need, the NIT scheme offers a more targeted and efficient way to address welfare challenges in the country. With the support of Finance Permanent Secretary Lavaron Sangsnit, Thailand is paving the way for a more sustainable and equitable welfare system that benefits both individuals and the economy as a whole.