Thailand : an analysis of fiscal activity in Thailand

THAILAND AN ANALYSIS OF FISCAL ACTIVITY I N THAILAND Background Working Paper No. 6 of 8 Prepared f o r t h e Thailand Basic Economic Report, No. 2059-TH i s s u e d on September 1, 1978 November 1978 Working Paper of East A s i a and P a c i f i c Programs Department T h i s paper i s prepared f o r s t a f f use. The views expressed a r e t h o s e of t h e a u t h o r and n o t n e c e s s a r i l y t h o s e of t h e World Bank.  AN ANALYSIS OF FISCAL ACTIVITY IN THAILAND (Background Working Paper No. 6) (a) Page 52 para. 4.04 line 4 should read, "1.006. Both taxes and GDP grew at nearly the same rate. Thus, relative tax growth". (b) Page 53 Table 22 column 2 should read, "Relative growth (l+r)If. (c) Page 54 para. 4.05 line 1 should read, "In Table 22, relative tax growth rates for 1970-77 are assumed constant"; line 3 should read, 1I assuming GDP grows at 7% annually. The aggregate measured relative growth rate for"; and line 7 should read, "that taxes with relative growth exceeding 1 are also the taxes in 1977 which". (d) Page 55 para. 4.08 line 1 should read, "Table 22 also projects the relative growth of Central Government"; and lines 3 and 4 should read, "Should the relative growth rate persist unchanged to 1985, the current expenditure ratio would fall slightly to just over 13%. Because the relative growth". (e) Page 55 para. 4.11 line 5 should read, "(8% annually), the R values for trade taxes imply substantial and continuing decline in". (f) Page 55 para. 4.12 line 2 should read, "tax revenue be increased by reducing tax avoidance. The relative growth of"; and line 6 should read, "recent tax effort. If the R value persists and everything else is as".  FOR OFFICIAL USE ONLY PREFACE This r e p o r t was prepared by M r . Jacob Meerman who v i s i t e d Thailand i n November/December 1977 a s a member of a b a s i c economic m i s s i o n . Section Two on Budget I n c i d e n c e was prepared w i t h t h e a s s i s t a n c e of P r o f e s s o r Mehdi Krongkaew of Thammasat U n i v e r s i t y . The major f i n d i n g s of t h i s r e p o r t have been i n c o r p o r a t e d i n a b a s i c economic r e p o r t e n t i t l e d "Thailand : Towards a Development S t r a t e g y of F u l l P a r t i c i p a t i o n , " Report No. 2059-TH, September 1 , 1978. This document has a restricted distribution and may be used by recipients only in the performance o f their omcial duties. Its contents may not otherwise be disclosed without World Bank authorization.  AN ANALYSIS OF FISCAL ACTIVITY IN THAILAND TABLE OF CONTENTS Page No . INTRODUCTION ........................... 1 1 . RECENT TRENDS I N RESOURCE MOBILIZA1X .............. 1 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 P u b l i c Savings . . . . . . . . . . . . . . . . . . . . . . . . . 5 Expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Crisis i n F i s c a l 1974 ...................... 9 2 . BUDGET INCIDENCE I N THAILAND. 1972 ................ Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . 11 The D i s t r i b u t i o n of Income . . . . . . . . . . . . . . . . . . . 11 Tax Incidence . . . . . . . . . . . . . . . . . . . . . . . . . . 15 Benefit Incidence . . . . . . . . . . . . . . . . . . . . . . . 17 Results. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 3. T AX POLICY AND ADMINISTRATION . . . . . . . . . . . . . . . . . . 27 General C o n s i d e r a t i o n s . . . . . . . . . . . . . . . . . . . . . 27 Income Taxation . . . . . . . . . . . . . . . . . . . . . . . . 28 Treatment of C a p i t a l Gains . . . . . . . . . . . . . . . . . . . 32 Trade Taxation . . . . . . . . . . . . . . . . . . . . . . . . . . 33 P r o p e r t y Taxation . . . . . . . . . . . . . . . . . . . . . . . 33 Land Development Tax . . . . . . . . . . . . . . . . . . . . . . 34 The Business Tax . . . . . . . . . . . . . . . . . . . . . . . . 38 Motor F u e l T a x e s . . . . . . . . . . . . . . . . . . . . . . . . 43 Tax A d m i n i s t r a t i o n . . . . . . . . . . . . . . . . . . . . . . . 47 4 . FUTURE REVENUES . . . . . . . . . . . . . . . . . . . . . . . . . 50 Projections . . . . . . . . . . . . . . . . . ........ 50 5. S UM M A R Y AND RECOMMENDATIONS . . . . . . . . . . . . . . . . . . . 57 Sumary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57 Recommendations . . . . . . . . . . . . . . . . . . . . . . . . 59  LIST OF TABLES T a b l e No . Page No . S e l e c t e d Developing C o u n t r i e s R a t i o of Taxes t o GNP Composition of C e n t r a l Government Tax Revenues ....... Thailand and 47 Developing C o u n t r i e s Government Account Aggregates as a P e r c e n t a g e of GNPFY70-77 .................... P e r c e n t a g e D i s t r i b u t i o n of C e n t r a l Government ........ E x p e n d i t u r e s and T r a n s f e r s . FY70-77 C e n t r a l Governments' R a t i o ~f E x p e n d i t u r e s t o GNP. P e r c e n t a g e of E x p e n d i t u r e on E d u c a t i o n . H e a l t h . ... and A g r i c u l t u r e . S e l e c t e d C o u n t r i e s . 1972-73 Annual P e r c e n t a g e Change i n Basic Economic V a r i a b l e s FY74 and FY75 ................... Income i n Kind a s a P e r c e n t of Money Income. Survey Data. 1972 ...... Components of Broad Income .... .. .. .. .. .. .. .. .. .. . ... .. .. .. C e n t r a l Government Revenues. 1972.. .. .. . D e r i v a t i o n of Unreported Income. 1972 C e n t r a l Government E x p e n d i t u r e s by F u n c t i o n a l ............... C l a s s i f i c a t i o n . 1972 Budget I n c i d e n c e . ( Short-Term Backwards) Whole Kingdom. 1972 ................ lla .......... Tax I n c i d e n c e 1963. 1969. 1972 Budget I n c i d e n c e (Short-Term Backwards) by 12 Region. 1972 ................... .. .. .. .. .. .. ... G i n i C o e f f i c i e n t s 1963. 1969. 1972 .. B r i e f D e s c r i p t i o n of Major Taxes ........... S t a n d a r d Deduction Rates. 1977 Schedule of S e l e c t e d Rates f o r Land Development Tax Crude E s t i m a t i o n - o f B u s i n e s s Tax Base. as a ........ P e r c e n t of Value Added i n GDP. 1975 .. B u s i n e s s Tax C a t e g o r i e s . R a t e s . and C o l l e c t i o n s Motor Fuel P r i c e s and Taxes. T h a i l a n d and ....... Nonoil-Producing Developing C o u n t r i e s ......... Replacement C o s t s o f Road System Annual Taxes and C o s t s on HLghway T r a n s p o r t FY75-76 ...................... R e s u l t s of Tax F i l i n g Survey i n 19 D i s t r i c t s o f ................ Bangkok i n Mid-1977 P r o j e c t i o n s o f Taxes. O t h e r Domestic Revenues and C u r r e n t E x p e n d i t u r e . 1980 and 1985 Based on ............... S t r u c t u r e of 1970-77 .. C e n t r a l Government Domestic Revenue ... .. .. .. .. .. .. . C e n t r a l Government E x p e n d i t u r e s P e r c e n t a g e D i s t r i b u t i o n of C e n t r a l Government Expenditures ................. .. .. . F i n a n c i n g of C e n t r a l Government E x p e n d i t u r e s T a b l e No. Page No. C e n t r a l Government R e c e i p t s , Budget FY77 & FY78 ..... 64 F u n c t i o n a l C l a s s i f i c a t i o n of C e n t r a l Government E x p e n d i t u r e Budget FY78 Local Government Accounts .. .... .. .. .. .. .. .. .. .. .. .. .. .. ... 65 66 S t a t e E n t e r p r i s e s G r o s s Fixed C a p i t a l E x p e n d i t u r e s and T h e i r F i n a n c i n g by F u n c t i o n ............. 67 ......... Consolidated Public S e c t o r Expenditures P e r c e n t a g e D i s t r i b u t i o n of C o n s o l i d a t e d P u b l i c S e c t o r 68 ...................... Expenditures .. Financing of Consolidated P u b l i c S e c t o r Expenditures T h a i l a n d , P u b l i c S e c t o r Developments and R e l a t i o n 69 70 toGDP1970-77 ..................... Revenues o f t h e C e n t r a l Government, and Codes f o r t h e i r 71 .... I n t e r r e g i o n a l and I n t r a r e g i o n a l A l l o c a t i o n , 1972 A l l o c a t i o n f o r I n t e r r e g i o n a l D i s t r i b u t i o n of P u b l i c 72 Revenues, 1972 ..................... 79 D i s a g g r e g a t e d E x p e n d i t u r e s o f t h e C e n t r a l Government, and Codes f o r I n t e r r e g i o n a l and I n t r a r e g i o n a l A l l o c a t i o n , 1972.................... A l l o c a t i o n f o r I n t e r r e g i o n a l D i s t r i b u t i o n of 80 P u b l i c E x p e n d i t u r e s , 1972 ................ 83 A l l o c a t i o n by Household Income ............. 84 L i s t of A b b r e v i a t i o n s CAO Changwat A d m i n i s t r a t i v e O r g a n i z a t i o n CAS c u r r e n t account s u r p l u s FY f i s c a l year HH household HRT House and Rent Tax LDT Land Development Tax VAT Value added tax  AN ANALYSIS OF FISCAL ACTIVITY I N THAILAND INTRODUCTION I n 1974 t h e World Bank p u b l i s h e d "A Study of P u b l i c F i n a n c e i n Thailand."/l That Study g i v e s a t h o r o u g h a n a l y s i s of t h e f i s c a l s e c t o r and its It c o v e r s t a x a t i o n by c e n t r a l and l o c a l governments, s t a t e e n t e r p r i s e s , l o c a l a d m i n i s t r a t i o n , f i s c a l i n c e n t i v e s t o promote i n v e s t m e n t , and p u b l i c a c c o u n t s . The s t u d y cont'inues t o be v e r y u s e f u l b o t h a s a d e t a i l e d compendium d e s c r i b i n g p u b l i c s e c t o r i n s t i t u t i o n s as w e l l a s a p o i n t of depar- t u r e f o r a n a l y s i s of p o l i c y i s s u e s . T h i s p a p e r owes a g r e a t d e a l t o i t . The '74 Study o b v i a t e s t h e need f o r a comprehensive d e s c r i p t i o n of f i s c a l i n s t i t u t i o n s and many p o l i c y i s s u e s . Consequently s u c h c o v e r a g e i s n o t attempted. The paper h a s f i v e p a r t s : (a) Trends w i t h r e s p e c t t o t a x e s , p u b l i c e x p e n d i t u r e , p u b l i c s a v i n g and p u b l i c investment. (b) A s t u d y of t h e impact of c e n t r a l government budget a c t i v i t y on t h e d i s t r i b u t i o n of income. (c) An a n a l y s i s of b a s i c i s s u e s w i t h r e s p e c t t o t a x e s . (d) P r o j e c t i o n s of p u b l i c r e v e n u e s u s i n g v a r i o u s s c e n a r i o s . (e) B r i e f summary and recommendations. 1. RECENT TRENDS I N RESOURCE MOBILIZATION Taxes 1.01 The c o n t i n u i n g primacy of T h a i l a n d ' s p r i v a t e s e c t o r i s r e f l e c t e d i n t h e p u b l i c a c c o u n t s . The s h a r e of GNP channeled i n t o p u b l i c u s e s i s below a v e r a g e f o r T h a i l a n d ' s economic s t r u c t u r e . A s shown i n T a b l e 1 , T h a i l a n d ' s t a x r a t i o w a s 18% below t h e mean of 47 d e v e l o p i n g c o u n t r i e s i n 1969-71. 1.02 T h i s c o n c l u s i o n i s r e i n f o r c e d by u s i n g a r e g r e s s i o n a n a l y s i s , i n which t h e t a x t o GNP r a t i o i s t h e dependent v a r i a b l e and t h e independent v a r i a b l e s measure t a x a b l e c a p a c i t y . I n s e v e r a l such s t u d i e s , t h e most used t a x c a p a c i t y v a r i a b l e s were p e r c a p i t a nonexport income, t h e r a t i o of e x p o r t s t o GNP ( m i n e r a l e x p o r t s e x c l u d e d ) and t h e s h r e of m i n e r a l p r o d u c t i o n i n GNP. Cross-country r e g r e s s i o n s u s i n g t h e s e have R 9 as h i g h a s .44. The r e s i d l . ' v a r i a n c e i s t h e n a s c r i b e d t o t h e "tax e f f o r t " of i n d i v i d u a l c o u n t r i e s . l'hclt, once t h e p a r a m e t e r s a r e e s t i m a t e d , t h e r e g r e s s i o n a n a l y s i s p r o v i d e s e a c h country's predicted tax r a t i o defined a s t h e average tax e f f o r t given i t s /1 Oktay Yenal l e d t h e s t u d y m i s s i o n . - It i n c l u d e d Kazuko A r t u s ( p u b l i c a c c o u n t s ) , K a r l S t i c h e n w i r t h ( p u b l i c e n t e r p r i s e s ) , Kenneth Hubbell ( l o c a l f i n a n c e ) , James Theberge ( i n d u s t r i a l i n c e n t i v e s ) , Woo S i k Kee ( t a x a t i o n ) , Laurence H i n k l e ( a c c o u n t i n g ) and Bernard Schwartz ( r e s i d e n t e c o n o m i s t ) . v e c t o r o f independent v a r i a b l e s . I n Table 1 t h e index of t a x e f f o r t i s d e f i n e d a s t h e r a t i o of t h i s a c t u a l t o t h e p r e d i c t e d r a t i o . I n "high t a x e f f o r t " c o u n t r i e s , t h e a c t u a l r a t i o exceeds t h e p r e d i c t e d r a t i o . As shown i n Table 1 , Thailand i s s l i g h t l y below t h e mean - by d e f i n i t i o n 1 - w i t h a n index of 0.925.11 Were s o c i a l s e c u r i t y t a x e s i n c l u d e d , Thailand would s l i p s u b s t a n t i a l l y b a o w t h e mean, s i n c e i t does n o t have a s o c i a l s e c u r i t y system. 1.03 I n terms of "performance c r i t e r i a ' ' e q u a l l y i m p o r t a n t i s T h a i l a n d ' s s t a g n a t i n g t a x r a t i o . A s i n d i c a t e d i n Table 3 below, i n t h e 1970s c e n t r a l government t a x e s - which account f o r 95% of t o t a l t a x e s - have g e n e r a l l y ranged from 1 1 t o 13%. However, throughout t h e 1960s, t h e r a t i o had t h e Table 1 : SELECTED DEVELOPING COUNTRIES' RATIO OF TAXES TO GNP (11 1969-71 Index of I n o r d e r of i n c r e a s i n g p e r c a p i t a income (1973) t a x e s / ~ ~ ~x e f f o r t ta Pakistan / a India Indonesia Egypt Thailand Philippines Korea Malaysia Turkey Mean (47 c o u n t r i e s ) Note: S o c i a l s e c u r i t y t a x e s a r e excluded from t h e r a t i o s . Since Thailand has no s o c i a l s e c u r i t y system, i n c l u d i n g such t a x e s would s i g n i f i c a n t l y lower T h a i l a n d ' s index of t a x e f f o r t . The R~ f o r t h e t a x e f f o r t r e g r e s s i o n was 0.376. Source: C h e l l i a h , Raja J. e t a l . "Tax R a t i o s and Tax E f f o r t i n Developing C o u n t r i e s , 1969-71,"MF S t a f f P a p e r s , Vol., X X I I , No. 1 , March, 1975. 11 Needless t o s a y , t h i s t e c h n i q u e must be used w i t h c a u t i o n . - While b e t t e r than s i m p l e comparisons of t a x r a t i o s , i t s t i l l l e a v e s o v e r t h r e e f i f t h s of t h e t o t a l v a r i a n c e unexplained. It i s e n t i r e l y t o o much t o a s c r i b e a l l of t h i s r e s i d u a l s o l e l y t o " e f f o r t " . A h o s t of f a c t o r s beyond government c o n t r o l , and n o t r e a d i l y grasped i n s t a t i s t i c a l f o r m u l a t i o n s , probably a c c o u n t f o r much o f t h e unexplained v a r i a n c e . same range. Not u n t i l we move back t o t h e 1950s was t h e r e a dynamic t a x / G N ~ r a t i o . I n 1951 t h e r a t i o was 8.7% i n c r e a s i n g by a t h i r d over t h e decade t o 11.5% i n 1 9 6 0 . D By c o n t r a s t , t h e t a x s h a r e of GNP i n o t h e r developing c o u n t r i e s c o n t i n u a l l y i n c r e a s e d from t h e 1950s through t h e 1960s. For 27 developing c o u n t r i e s t h e r a t i o was 11.3% i n 1953-57, r i s i n g t o 13.8% i n 1966-68. For 47 developing c o u n t r i e s - - i n c l u d i n g t h e i n i t i a l 27 the ratio i n c r e a s e d from 13.8% i n 1966-68 t o 15.1% i n 1969-71./2 1.04 Although t h e t a x r a t i o h a s n o t followed a t r e n d , Thailand's composi- t i o n of t a x e s e x h i b i t s t h e u s u a l change a s s o c i a t e d w i t h economic development, namely a r e l a t i v e d e c l i n e i n f o r e i g n t r a d e t a x a t i o n , and i n c r e a s i n g s h a r e s f o r income a s w e l l a s turnover t a x e s and e x c i s e s ( s e e Table 2 ) . I n T a b l e 2, - t h e most d r a m a t i c d e c r e a s e i s i n e x p o r t t a x a t i o n mostly a f f e c t i n g a g r i c u l - t u r a l outputs, p a r t i c u l a r l y r i c e - from 20% of t h e t o t a l i n 1960, t o 4% i n 1976-77. Even i f f u t u r e e x p o r t t a x e s should double, s a y i n r e s p o n s e t o a jump i n t h e world p r i c e of r i c e , t h e s h a r e of e x p o r t t a x e s i n t h e t o t a l w i l l remain low. The days when t h e r i c e premium a l o n e accounted f o r a s i x t h of t o t a l government revenue (1957-59) are c l e a r l y over./3 This is not t o s u g g e s t t h a t heavy e x p o r t d u t i e s on r i c e a r e no l o n g e r p o s s i b l e , b u t t h e i r s h a r e i n t o t a l revenue i s s m a l l and should c o n t i n u e t o d i m i n i s h a s i t s s h a r e i n t o t a l production continues t o f a l l . & 1.05 Growth i n c o r p o r a t e t a x a t i o n h a s a l s o been dramatic. I n t r o d u c e d i n 1938, t h e c o r p o r a t e income t a x s h a r e h a s i n c r e a s e d more t h a n t h r e e f o l d s i n c e 1960, w h i l e t h e p e r s o n a l income t a x h a s c r e p t up from 6 t o 8% over t h e same 16 y e a r s ( s e e Table 2 ) . A s d i s c u s s e d below, i t i s l i k e l y t h a t t h i s minute growth, i n s p i t e of v e r y r a p i d expansion of paid employment i n t h e same p e r i o d , r e f l e c t s an i n c r e a s e i n avoidance of t h e p e r s o n a l income t a x . Over t h e same 16 y e a r s t h e s h a r e of t u r n o v e r and e x c i s e s doubled. Of t h e s e , t h e b u s i n e s s t a x - an ad valorem t a x on g r o s s r e c e i p t s - was most prominent, a c c o u n t i n g f o r 21% of t a x e s i n 1970, r i s i n g t o 23% i n 1 9 7 7 . E I n c o n t r a s t t o e a r l i e r y e a r s , p r o p e r t y t a x e s (on l a n d , b u i l d i n g s and motor v e h i c l e s ) have l a r g e l y s t a g n a t e d as a v e r y s m a l l p r o p o r t i o n of t o t a l taxes.& I n t h i s r e s p e c t , T h a i l a n d is n o t /1 Ingram, James, Economic Change i n Thailand 1950-1970 ( S t a n f o r d U n i v e r s i t y - P r e s s , S t a n f o r d , 1971), pp. 222 and 300. 12 That both samples had t h e same mean i n 1966-68 i s a coincidence. See t h e IMF Study c i t e d i n Table 1. 13 - Ingram James C., Economic Change i n Thailand 1950-1970 ( S t a n f o r d U n i v e r s i t y P r e s s , 1971 p. 246. 14 - T h i s i s n o t t o u n d e r e s t i m a t e t h e c o n t i n u i n g heavy burden of r i c e t a x a t i o n i n p a r t i c u l a r and t r a d e t a x a t i o n i n g e n e r a l on farm incomes a s a r e s u l t of r a d i c a l l y t u r n i n g t h e terms of t r a d e a g a i n s t a g r i c u l t u r e . T h i s point is discussed l a t e r . 15 - Derived from T a b l e A-1. I6 - I n t h e f i r s t q u a r t e r of t h e t w e n t i e t h c e n t u r y , l a n d t a x e s accounted f o r more than a t e n t h of c e n t r a l government domestic revenues. (Ingram, z &. . , p . 185. a t y p i c a l . I n both t h e 1950s and 1960s t h e s h a r e of p r o p e r t y t a x a t i o n d e c l i n e d i n t h e m a j o r i t y o f d e v e l o p i n g c o u n t r i e s l a r g e l y due t o a f a i l u r e t o i n c r e a s e c a d a s t r a l v a l u e s i n l i n e w i t h i n f l a t i o n . Thailand i s a t y p i c a l , however, i n t h a t Thai l o c a l governments m a i n t a i n r e a s o n a b l y up-to-date c a d a s t r e s . 1.06 T a b l e 2 a l s o compares T h a i l a n d ' s t a x s t r u c t u r e w i t h t h a t of 47 d e v e l o p i n g c o u n t r i e s . Income t a x e s a r e of less w e i g h t i n t h e Thai s t r u c t u r e t h a n f o r t h e a v e r a g e c o u n t r y and t u r n o v e r and e x c i s e s , a c c o u n t i n g f o r n e a r l y h a l f t h e Thai t o t a l exceed t h e mean of 32X. The r a p i d s h i f t i n t h e composi- t i o n o f t a x e s h a s meant t h a t t r a d e t a x e s which were o v e r t h e mean i n 1970, were p r o b a b l y below i t i n 1977.11 - T a b l e 2: COMPOSITION OF CENTRAL GOVERNMENT TAX REVENUES THAILAND AND 47 DEVELOPING COUNTRIES ( i n % of t o t a l t a x e s ) 47 d e v e l o p i n g Thailand countries 1960 1964 1970 1976-77 1969-7 1 Income Personal Corporate Trade Imports Exports Turnover and E x c i s e s - 25 - 35 - 43 - 49 - 32 Other - 13 - 7 7 - 6 - 8 - Property 3 2 5 Sources: Thai d a t a 1960-70, Bank of T h a i l a n d , Monthly Report; 1976-77, Table A-1. Forty-seven Developing C o u n t r i e s : C h e l l i a h , R a j a J . , e t a l . , "Tax ~ a t i o s and Tax ~ f f o r ; i n Developing c o u n t r i e s , - 1 9 6 e 7 1 , " IMF S t a f f P a p e r s , Vol. XXII, No. 1, March 1975. /1 T h a i l a n d ' s b u s i n e s s t a x i s a l s o l e v i e d on i m p o r t s , and t h e proceeds c l a s s i - - f i e d w i t h o t h e r r e c e i p t s from t h e b u s i n e s s t a x . Consequently, t h e measure of t r a d e t a x a t i o n i s s y s t e m a t i c a l l y b i a s e d downward. It i s l i k e l y t h a t s i m i l a r e r r o r s occur i n the accounts of o t h e r c o u n t r i e s . 1.07 A n a l y s i s of r e s o u r c e m o b i l i z a t i o n s o l e l y i n terms of t h e c e n t r a l government t a x r a t i o obviously g i v e s v e r y incomplete r e s u l t s . Other c u r r e n t revenues a r e a l s o r e l e v a n t . T a b l e 3 p r e s e n t s t h e domestic o r c u r r e n t revenues of b o t h c e n t r a l and l o c a l governments s i n c e 1969 a s a p e r c e n t a g e of GNP. For t h e e i g h t y e a r s , c e n t r a l government t a x e s accounted f o r 85% of t h e c o n s o l i d a t e d domestic revenues. T h i s i s above t h e mean p e r c e n t a g e f o r c o u n t r i e s of s i m i l a r population. Consequently, i f our i n f e r n a t i o n a l comparison were i n terms of domestic revenues f o r a l l l e v e l s of government, t h e c o n c l u s i o n would b e s i m i l a r t o t h a t f o r t h e t a x comparison a l o n e : a r e l a t i v e l y low l e v e l of government resource mobilization. P u b l i c Savings 1.08 T a b l e 3 shows t h a t n o t w i t h s t a n d i n g t h e low l e v e l of c u r r e n t resour- c e s , t h e C e n t r a l Government h a s c o n s i s t e n t l y r u n a s i z e a b l e c u r r e n t s u r p l u s a v e r a g i n g 1.7% of G NP over 1970-77. When we add t o t h i s s e l f - f i n a n c e d i n v e s t - ments by e n t e r p r i s e s , we d e f i n e t h e p u b l i c s e c t o r s u r p l u s which h a s averaged 2.5% of G NP s i n c e 1969, b u t a g a i n w i t h no t r e n d . Over t h e same p e r i o d , c a p i t a l f o r m a t i o n of governments and s t a t e e n t e r p r i s e s was 6.3% of GNP, l e a v i n g a d e f i c i t of 3.8% of GNP. Less t h a n a t h i r d of t h i s d e f i c i t was covered by Tml.3: GOVERNMENT ACCOUNT AGGREGATES AS A PERCENTAGE OF GNP FY70-77 C e n t r a l Government t a x e s 12.5 11.9 11.5 10.5 13.1 11.8 11.6 12.7 L o c a l and C e n t r a l Governments Domestic r e v e n u e s k 14.8 14.3 13.7 12.4 14.9 14.1 14.0 14.9 Current expenditures 12.9 13.6 13.3 11.4 10.8 11.9 12.3 13.0 Current surplus 1.9 0.7 0.4 1.0 4.1 2.2 1.7 1.9 Enterprise self-financeb 1.3 1.1 0.9 0.8 0.7 0.6 0.5 0.7 Total surplus 3.2 1.8 1.3 1.8 4.8 2.8 2.2 2.6 Public c a p i t a l formation 7.0 7.7 7.2 5.3 4.3 4.6 6.0 7.9 Deficit 3.8 5.9 5.9 3.5 -0.5 1.8 4.8 5.1 C e n t r a l bank borrowing 2.5 1.5 - 0.7 0.3 0.2 1.4 2.1 Other domestic borrowing and change i n c a s h b a l a n c e s 0.6 3.5 5.1 1.9 -1.5 0.8 1.6 1.5 External grants 0.7 0.8 0.3 0.4 0.3 0.3 0.2 0.2 External loans, n e t - 0.1 0.5 0.5 0.4 0.5 0.6 1.2 / a Tax revenues of l o c a l governments have been l e s s t h a n 5% of t o t a l t a x e s . - T h e i r domestic revenues have been l e s s than 6 % of t o t a l domestic revenues. I n c l u d e s t r a n s f e r s of s t a t e e n t e r p r i s e s t o C e n t r a l Government. /b Primarily provision for depreciation plus net operating surplus a f t e r t r a n s f e r t o Government. Source: Appendix T a b l e s , passim. c e n t r a l bank borrowing which averaged only 1.1% of GNP. Such c o n s e r v a t i s m i s no doubt a major r e a s o n f o r Thailand's e x t r a o r d i n a r y p r i c e s t a b i l i t y . 0 1.09 A s a l s o shown i n Table 3 , t h e average n e t c o n t r i b u t i o n of f o r e i g n a s s i s t a n c e ( g r a n t s and l o a n s , . n e t of a m o r t i z a t i o n ) h a s been 0.7% of GNP, t h a t i s a n i n t h of t o t a l p u b l i c c a p i t a l formation. Foreign a s s i s t a n c e p r e s e n t l y makes o n l y a l i m i t e d c o n t r i b u t i o n t o r e s o u r c e s used f o r development and i t i s p r o b a b l e t h a t T h a i l a n d , w i t h i t s good d e b t repayment r e c o r d , s o l i d f o r e i g n t r a d e p r o s p e c t s , and r a t h e r low p e r c a p i t a income, could g e n e r a t e a l a r g e r f l o w of f o r e i g n a i d . 1.10 The m o b i l i z a t i o n of p u b l i c funds f o r development should a l s o be c o n s i d e r e d . Unlike many c o u n t r i e s , T h a i l a n d ' s government makes v i r t u a l l y no t r a n s f e r payments t o households.& On a v e r a g e , t h e s t a t e e n t e r p r i s e s have low b u t p o s i t i v e r a t e s of r e t u r n and do n o t c o n s t i t u t e t h e d r a i n on f i s c a l r e s o u r c e s t h a t i s t y p i c a l of p u b l i c e n t e r p r i s e s i n many LDCs. (According t o an IMF Study f o r t h e e a r l y 1960s, of 64 p u b l i c e n t e r p r i s e s i n 16 c o u n t r i e s t h e average e n t e r p r i s e ' s f i n a n c i a l r a t e of r e t u r n b e f o r e t a x e s was a n e g a t i v e 4.8%)./3 F i n a l l y , consumer s u b s i d i e s f o r f u e l , f o o d , s h e l t e r and t r a n s p o r t are - thus f a r - low, a c c o u n t i n g f o r l e s s t h a n 1%of GNP. ( I n S r i Lanka, Egypt, I r a n and P e r u such s u b s i d i e s have equaled a t l e a s t 3% and a s much a s 8% of GNP). 1.11 T h a i l a n d h a s t h u s l a r g e l y avoided t h r e e common t r a p s /4 which g r e a t l y r e d u c e w e l f a r e and growth-promoting government a c t i v i t y i n poor c o u n t r i e s : s u b s i d i e s t o e n t e r p r i s e s , consumption s u b s i d i e s t o consumers, and w e l f a r e t r a n s f e r s . The w e l f a r e of t h e poor i s g e n e r a l l y n o t g r e a t l y i n c r e a s e d by such programs because of t h e i r urban b i a s and consumption by b e t t e r - o f f g r o u p s , w h i l e r e s o u r c e s a v a i l a b l e f o r c a p i t a l f o r m a t i o n f o r , s a y , elementary e d u c a t i o n , f e e d e r r o a d s , o r p r e v e n t i v e medical c a r e a r e g r e a t l y reduced./5 /1 The h i g h v a l u e g i v e n t o f i s c a l c o n s e r v a t i s m i s a l s o r e f l e c t e d i n f e d e r a l - l e g i s l a t i o n and r e g u l a t i o n : t h e Budgetary Procedures A c t limits n e t domestic borrowing t o 20% of t o t a l budgetary e x p e n d i t u r e n e t of d e b t repayments, and t h e Council of M i n i s t e r s h a s l i m i t e d d e b t s e r v i c e payments p e r y e a r t o 13% of c u r r e n t revenue o r less. /2 I n t h e USA i n 1975, p u b l i c s o c i a l s e c u r i t y p e n s i o n s , a i d t o poor f a m i l i e s - w i t h dependent c h i l d r e n , food s u b s i d i e s f o r t h e poor, and unemployment compensation accounted f o r over 7% of GNP. Among developing c o u n t r i e s , s e v e r a l L a t i n American n a t i o n s a l s o have l a r g e w e l f a r e t r a n s f e r s . - /3 G a n t t , Andrew H. and D u t t o , Guiseppe, " F i n a n c i a l Performance of Goverment- owned C o r p o r a t i o n s i n L e s s Developed C o u n t r i e s , " IMF S t a f f P a p e r s , Volume XV, No. 1, March 1968, pp. 102-40. /4 They a r e t r a p s i n t e r a l i a because once a government i s i n them, i t i s v e r y h a r d t o g e t o u t of them. - I5 I n t h e c a s e of consumption s u b s i d i e s , u s u a l l y t h e r i c h purchase more of t h e s u b s i d i z e d goods t h a n t h e poor. Even i f t h e poor p u r c h a s e a s much, e . g - r i c e , "leakage" i s h i g h . I f t h e poor a r e d e f i n e d a s t h e bottom two q u i n t i l e s of t h e income d i s t r i b u t i o n , t h e n t o a s s i s t them by a g i v e n amount may r e q u i r e a n o u t l a y about two and one h a l f t i m e s h i g h e r . T h i s i s n o t t o s a y t h a t T h a i l a n d ' s government u s e s t h e r e l a t i v e l y low s h a r e o f r e s o u r c e s which i t c o l l e c t s t o g r e a t l y improve t h e well-being of t h e poor. The s e c t i o n on budget i n c i d e n c e shows t h a t t h i s i s n o t t h e c a s e . R a t h e r p u b l i c r e s o u r c e s have been used p r i m a r i l y t o promote s e c u r i t y and o r d e r ( d e f e n s e , p o l i c e , c e n t r a l a d m i n i s t r a t i o n ) , and economic development as w e l l a s t o p r o v i d e s e r v i c e s t o t h e l e s s p o o r , a s d i s c u s s e d below. 1.12 Table 4 p r e s e n t s t h e f u n c t i o n a l s h a r e s of c e n t r a l government e x p e n d i t u r e s and t r a n s f e r s . A s w i t h t h e d a t a on d o m e s t i c r e s o u r c e s t h e r e i s no t r e n d over t h e e i g h t y e a r s i n t o t a l o u t l a y s as a p e r c e n t a g e of GNP. (A l i n e a r r e g r e s s i o n of t h e t o t a l on time would have a s l i g h t n e g a t i v e c o e f f i c i e n t w i t h l i t t l e s i g n i f i c a n c e ) . I n c o n t r a s t , overhead e x p e n d i t u r e ( i n c l u d i n g c e n t r a l a d m i n i s t r a t i o n p e n s i o n s , i n t e r n a l and e x t e r n a l s e c u r i t y ) w i t h t h e e x c e p t i o n of t h e 1973-74 b u l g e h a s a downward t r e n d . E x p e n d i t u r e f o r highways a l s o e x h i b i t s a d e c r e a s i n g s h a r e . I n s p i t e of t h e r e c e n t c o n c e r n w i t h i n c r e a s i n g a g r i c u l t u r a l incomes t h e e x p e n d i t u r e s h a r e i n a g r i c u l t u r e i n 1976-77 i s s u b s t a n t i a l l y lower t h a n i n 1970-71. However, e x p e n d i t u r e s on t h e s o c i a l s e r v i c e s show a n i n c r e a s i n g t r e n d , l a r g e l y due t o e d u c a t i o n , which i n b o t h 1976 and 1977 w a s c l a i m i n g o v e r a f i f t h of government r e s o u r c e s , a s h a r e which i s a t h i r d l a r g e r t h a n i n 1970-71. Table 4: PERCENTAGE DISTRIBUTION OF CENTRAL GOVERNMENT EXPENDITURES AND TRANSFERS, FY70-77 Overheadexpenditure/a 38.1 37.7 37.0 42.1 41.8 36.7 34.4 34.1 Defense and p o l i c e (current only) 22.3 22.4 22.8 22.8 24.8 22.7 22.5 21.9 Economic S e r v i c e s 25.4 23.5 21.5 18.8 17.3 16.8 19.2 20.6 Agriculture (10.7) (10.4) (8.1) (7.2) (7.1) (6.8) (8.3) (8.6) Highways (11.6) (10.9) (11.6) (9.8) (8.4) (8.2) (8.7) (9.0) Social Services 21.7 23.4 25.0 23.8 27.0 28.0 28.5 31.2 Education (15.8) (17.2) (18.8) (18.4) (21.3) (19.4) (21.5) (22.0) Medical c a r e (3.0) (3.1) (3.2) (3.1) (3.4) (3.1) (3.5) (4.7) /b Transfers - 6.9 6.7 4.9 4.9 2.9 9.3 9.7 5.3 Interest 5.5 6.3 8.0 8.9 9.3 7.9 7.0 7.6 /c Unidentified - 2.3 2.4 3.6 1.6 1.6 1.4 1.1 1.2 T o t a l a s % o f GNP - 18.2 - 19.6 - 18.4 - 14.8 - 13.3 - 15.2 - 16.8 - 17.4 /a - Defense, p o l i c e , c e n t r a l a d m i n i s t r a t i o n , government p e n s i o n s , m i s c e l l a n e o u s . /b - To l o c a l governments and s t a t e e n t e r p r i s e s . / c E x p e n d i t u r e f i n a n c e d o u t of U - S c o u n t e r p a r t a c c o u n t s and from f o r e i g n g r a n t s . T e c h n i c a l a s s i s t a n c e a c c o u n t s form a l a r g e s h a r e o f t h e s e e x p e n d i t u r e s . Source: Table A-3. 1.13 T a b l e 5 compares T h a i l a n d ' s e x p e n d i t u r e s f o r e d u c a t i o n , h e a l t h , and a g r i c u l t u r e w i t h s e v e n o t h e r c o u n t r i e s whose c e n t r a l governments a c c o u n t f o r n e a r l y a l l p u b l i c e x p e n d i t u r e . I n 1972-73, T h a i l a n d devoted a s l i g h t l y l a r g e r s h a r e (29.1%) of c e n t r a l government e x p e n d i t u r e t o t h e s e a c t i v i t i e s , t h a n t h e a v e r a g e (27.3%) f o r t h e e i g h t c o u n t r i e s . But s i n c e i t s e x p e n d i t u r e s as a p e r c e n t of GNP were 16.6% a s compared t o t h e a v e r a g e of 20.5%, i t s expen- d i t u r e s on h e a l t h and a g r i c u l t u r e i n terms of GNP were s u b s t a n t i a l l y below a v e r a g e , p a r t i c u l a r l y as c o n c e r n s h e a l t h c a r e . T h i s outcome i s a l s o r e f l e c t e d i n t h e consumption of p u b l i c s e r v i c e s . N e a r l y a l l young p e o p l e have r e c e i v e d o r are r e c e i v i n g e d u c a t i o n through t h e lower primary l e v e l . However, i n most r u r a l a r e a s , p u b l i c l y funded m e d i c a l c a r e i s simply u n a v a i l a b l e . I n 1976-77, T a b l e 5: CENTRAL GOVERNMENTS' RATIO OF EXPENDITURES TO GNP, PERCENTAGE OF EXPENDITURE ON EDUCATION, HEALTH, AND AGRICULTURE, SELECTED COUNTRIES, 1972-73 C e n t r a l Government -P e r c e n t a g e of e x p e n d i t u r e on: e x p e n d i t u r e as Education Health Agriculture % of GNP Burma (1973-74) 13.5 5.8 7.5 18.7 Iran 10.4 3.5 6.5 26.1 Korea (1973-74) 17.8 2.6 7.6 14.4 Malaysia 20.5 6.1 9.2 29.7 Pakistan 4.8 1.2 8.2 21.8 Philippines 23.0 6. 0 11.7 10.7 S r i Lanka (1973-74) 12.1 6.4 6.5 26.2 Thailand 18.6 - 3.2 712 - 16.6 Average /a 15.1 4.4 8.1 20.5 Average a s a % of GNP 3.1 0.9 1.7 T h a i l a n d as a % of GNP 3.1 0.5 1.2 - /a The c o r r e s p o n d i n g a v e r a g e s f o r 50 d e v e l o p i n g c o u n t r i e s p l u s F r a n c e , I r e l a n d , J a p a n , and t h e USA w e r e 16.2%, 8.5%, 7.8%, and 23%. Source: T a i t , Alan A. "Some Simple S t a t i s t i c a l T e s t s on Government E x p e n d i t u r e s , " IMF, F i s c a l A f f a i r s Department Working Paper FAD 76/4, November 12, 1976, pp. 27 and 34. i r r i g a t i o n accounted f o r two t h i r d s of t h e a g r i c u l t u r a l e x p e n d i t u r e ; of t h i s amount, t h r e e q u a r t e r s went t o c a p i t a l f o r m a t i o n . Crisis i n F i s c a l 1974 1.14 A d e t a i l e d review of t h e f i s c a l impact of 1974, i s h e l p f u l i n u n d e r s t a n d i n g t h e Thai economy. B a s i c t e n d e n c i e s , o f t e n v e i l e d by t h e i n t e r a c t i o n of many v a r i a b l e s , a r e brought more c l e a r l y t o t h e f o r e when change is r a p i d and extreme. N 7 4 /1 began w i t h OPEC q u a d r u p l i n g t h e p r i c e of c r u d e o i l and world commodity p r i c e s a c c e l e r a t e d t h e i r i n c r e a s e i n November 1973. The p r i c e of r i c e r o s e 35% from January t o a peak i n March 1 9 7 4 . B T h i s was accompanied by a worldwide b a l a n c e of payments c r i s i s and, i n many c o u n t r i e s , unprecedented r a t e s of i n f l a t i o n . 1.15 An immediate impact on Thailand was i n f l a t i o n induced by f o r e i g n t r a d e between t h e l a s t q u a r t e r of 1973 and i n t o t h e second q u a r t e r of 1974. The consumer p r i c e i n d e x jumped 22% i n t h e s e t h r e e q u a r t e r s . Food, which i s a l s o T h a i l a n d ' s p r i n c i p a l e x p o r t good, l e d t h e jump w i t h a n i n c r e a s e of 27% (and a 54% weight i n t h e CPI). S i m u l t a n e o u s l y , t h e r e was some d e t e r i o r a t i o n i n t h e terms of t r a d e which peaked i n 1973 a t 136 (1958 = 100) and f e l l t o 125 i n 1974, no doubt l a r g e l y due t o t h e i n c r e a s e i n t h e p r i c e of o i l . There was a l s o a s i z e a b l e i n c r e a s e i n t h e d e f i c i t on merchandise account. However, c a p i t a l movements w e r e s o f a v o r a b l e t h a t f o r e i g n exchange r e s e r v e s i n 1974 e x p e r i e n c e d by f a r t h e i r l a r g e s t a n n u a l i n c r e a s e f o r t h e p e r i o d 1970-77 (B 8.0 b i l l i o n ) , a l t h o u g h r e l a t i v e t o t h e money s t o c k , t h e accumulation was minute. The i n c r e a s e i n money supply was s m a l l : 10% i n 1974, and 6% i n 1975. ( I n c o n t r a s t , t h e r e w a s a 16% i n c r e a s e i n 1976). C l e a r l y , monetary expansion d i d n o t r e i n f o r c e t h e . i n f l a t i o n , a n outcome due t o t h e d e l i b e r a t e p o l i c y of t h e C e n t r a l Bank. 1.16 The Government a l s o a t t e m p t e d t o u s e f i s c a l means t o hold down i n f l a t i o n . I t allowed (nominal) p u b l i c e x p e n d i t u r e s t o i n c r e a s e o n l y 14% t o B 42 b i l l i o n i n N 7 4 , probably a d e c r e a s e i n r e a l t e r m s s i n c e most of t h e growth was due t o a B 3.5 b i l l i o n i n c r e a s e i n c i v i l s e r v a n t s a l a r i e s a s com- p e n s a t i o n f o r t h e e r o s i o n of t h e i r income by i n f l a t i o n . C e n t r a l government c a p i t a l e x p e n d i t u r e s were h e l d c o n s t a n t i n nominal terms p a r t l y t o reduce in- f l a t i o n , and p a r t l y a s a r e s u l t of underspending on c o n s t r u c t i o n c o n t r a c t s which had t o b e r e n e g o t i a t e d because of t h e unforeseen c o s t i n c r e a s e s . The modest i n c r e a s e (B 1.6 b i l l i o n ) i n p u b l i c c a p i t a l e x p e n d i t u r e t o B 13 b i l l i o n was accounted f o r e n t i r e l y by p u b l i c u t i l i t i e s a s t h e y continued t o implement t h e i r investment programs. I n c o n t r a s t , i n N 7 4 domestic revenues r o s e by a s t a r t l i n g 50%, t w i c e a s much a s GDP, a s a r e s u l t o f : ( a ) a 34% i n c r e a s e i n import d u t i e s because of t h e s h a r p rise i n import p r i c e s ; (b) a f i v e f o l d i n c r e a s e i n e x p o r t t a x e s due t o s o a r i n g r i c e and rubber p r i c e s ; ( c ) h i g h e r r a t e s of b u s i n e s s , import and e x c i s e t a x e s imposed a t t h e end of 1973; and (d) improved t a x a d m i n i s t r a t i o n brought t o b e a r on d r a m a t i c a l l y i n c r e a s e d money incomes ( s e e Table 5 a ) . Expenditure r e s t r a i n t p l u s t h e e x t r a o r d i n a r y growth of revenues swung t h e p u b l i c s e c t o r ' s budgetary p o s i t i o n from a d e f i c i t of B 5.7 b i l l i o n i n FY73 t o a s u r p l u s of B 2 b i l l i o n i n FY74, a swing e q u a l t o 3% of GDP. The C e n t r a l Government i n c r e a s e d i t s c a s h b a l a n c e s by over B 5 b i l l i o n . i.e. October 1, 1973 - September 30, 1974. Unless denominated M , t h e y e a r r e f e r r e d t o is t h e c a l e n d a r year. 12 - Monthly B u l l e t i n , Bank of Thailand. Rice p r i c e s were s o u n s e t t l e d from August through October 1973 t h a t t h e Monthly B u l l e t i n exclude them f o r t h e s e t h r e e months.  Table 5a: ANNUAL PERCENTAGE CHANGE I N BASIC ECONOMIC VARIABLES, FY74 AND FY75 % of d o m e s t i c E'Y73/74 FY74/75 revenue, 1974 Domestic Revenues Trade t a x e s Sales taxes 6 excises Income t a x e s Nontax revenue C e n t r a l Government_-Expenditure 11 25 P r i c e s , GDP Def l a x . Consumer p r i c e i n d e x Exports Imports GDP, nominal 25 8 Source: Bank of T h a i l a n d Monthly B-uLletw and u n p u b l i s h e d d a t a ; T a b l e s A-1 and A-2. 1.17 However, t h e Government's p o l i c y a l s o i n v o l v e d one a c t i o n which was c l e a r l y n o t r e s t r i c t i v e . I t gu& b u s i n e s s t a x e s on " e s s e n t i a l " consumer goods d o m e s t i c a l l y produced i n December 1973 ( s e v e r a l months p r i o r t o t h e i n f l a - t i o n a r y peak). 1.18 By J u n e 1974, t h e i n f l a t i o n had r u n i t s c o u r s e . From J u n e through December 1974, w h o l e s a l e p r i c e s i n c r e a s e d l e s s t h a n 1.1%, b u s i n e s s a c t i v i t y was d e p r e s s e d ; and t h e Government r e v e r t e d t o a n e x p a n s i o n a r y p o l i c y . I n J u l y 1974, i t reduced d u t i e s f o r over 300 c a t e g o r i e s of i m p o r t s , mainly i n p u t s f o r l o c a l manufacturing. A f t e r allowing s u b s t a n t i a l i n c r e a s e s i n l o c a l p e t r o l e u m p r i c e s between November 1973 and t h e f o l l o w i n g F e b r u a r y , i t reduced t h e e x c i s e tax on p e t r o l e u m p r o d u c t s i n October and December 1974 t o a v o i d i n c r e a s i n g r e t a i l p r i c e s a s producer c o s t s r o s e f u r t h e r . To p r e v e n t f u r t h e r i n c r e a s e s i n d o m e s t i c s u g a r and r i c e p r i c e s , i t i n t r o d u c e d a s l i d i n g s c a l e e x p o r t t a x f o r e u g a r i n t h e summer of 1974, w h i l e i t r e p e a t e d l y i n c r e a s e d t h e r i c e premium u n t i l J u n e 1974 when t h e p r o c e s s was r e v e r s e d . F i n a l l y , a l t h o u g h e l e c t r i c i t y rates were i n c r e a s e d i n A p r i l 1974 b e c a u s e of h i g h e r f u e l c o s t s , t h e Government allowed t h e p u b l i c e n t e r p r i s e s t o p a s s on o n l y p a r t of t h e s e i n c r e a s e d c o s t s t o consumers. The e f f e c t s of t h e s e v a r i o u s measures c o n t i n u e d t o b e f e l t i n 1 9 7 5 . D /1 The above m a t e r i a l i s from World Bank Report No. 924-TH, T h a i l a n d C u r r e n t Economic P r o s p e c t s and S e l e c t e d Development I s s u e s , November 14, 1975, Vole 1, pp. 18-19.  2. BUDGET INCIDENCE I N THAILAND, 1972 Introduction 2.01 The method t o d e t e r m i n e how p u b l i c e x p e n d i t u r e b e n e f i t s and t a x b u r d e n s d i s t r i b u t e among h o u s e h o l d s i s t h a t used i n s i m i l a r c o u n t r y s t u d i e s . Here we l a r g e l y r e p l i c a t e t h a t of Mehdi Krongkaew i n h i s s t u d y f o r 1963 and 1969.11 The approach c o n s i s t s o f : ( a ) e s t i m a t i n g household incomes; ( b ) e s t i m a t i n g t a x burdens and e x p e n d i t u r e b e n e f i t s ; ( c ) a n a l y z i n g d i s t r i b u t i o n o f households w i t h r e s p e c t t o incomes b e f o r e and a f t e r t h e e f f e c t s of budget a c t i v i t y . The a n a l y s i s i s of two k i n d s : t h e e f f e c t of t h e budget on t h e s i z e d i s t r i b u t i o n of income, and t h e e f f e c t of budget a c t i v i t y o n t h e i n t e r - r e g i o n a l d i s t r i b u t i o n of income. There a r e many problems i n u s i n g t h i s method n o t t h e l e a s t b e i n g t h e l a r g e number of b a s i c a s s u m p t i o n s , c o n c e r n i n g t h e i n c i d e n c e of v a r i o u s t a x e s and e x p e n d i t u r e s , which i t n e c e s s a r i l y e n t a i l s . The r e s u l t s a r e t h e r e f o r e broadbrush and need t o be q u a l i f i e d a s t h e y a r e i n t h e c o n c l u d i n g s e c t i o n of t h i s c h a p t e r . The r e s u l t s a r e r o b u s t , however, i n p e r m i t t i n g t h e g e n e r a l c o n c l u s i o n t h a t t h e Government of T h a i l a n d h a s used but a v e r y s m a l l s h a r e of r e s o u r c e s t o improve t h e economic well-being of t h e p o o r e s t t h i r d of t h e p o p u l a t i o n . The D i s t r i b u t i o n of Income 2.02 During 1971-73, T h a i l a n d ' s N a t i o n a l S t a t i s t i c a l O f f i c e (NSO) c a r r i e d o u t a Socio-Economic Survey which provided a measure of household ( H H ) incomes. The Survey d i d n o t c o v e r a l l r e g i o n s i n t h e same y e a r . C o n s e q u e n t l y , because of p r i c e c h a n g e s , many incomes had t o be a d j u s t e d t o t h e 1972 b a s e . The d a t a g e n e r a t e d f o r each household i n c l u d e d imputed v a l u e s f o r goods and s e r v i c e s o b t a i n e d t h r o u g h b a r t e r , p r o d u c t i o n f o r own consumption, and payment i n k i n d . These l a t t e r income components were e x c l u d e d from t h e N SO p u b l i c a t i o n of r e s u l t s b u t were i n t e g r a t e d i n t o a n a n a l y s i s of t h e s u r v e y f o r t h e World Bank by Carmel Chiswick.12 Their i n c l u s i o n i n c r e a s e d t h e household incomes of t h e N SO Survey b y 1 5 % . However, a l t h o u g h t h e a v e r a g e i n c r e a s e i n s u r v e y income w a s 1 5 % , a s shown i n T a b l e 6 , t h e w e i g h t of such income was i n v e r s e l y r e l a t e d t o household incomes. For example, f o r t h e p o o r e s t income c l a s s (29% of HHs) income i n k i n d a c t u a l l y was 112% of money income. A s d i s c u s s e d below, i n d i r e c t t a x e s - T h a i l a n d ' s major revenue s o u r c e - a r e i n e v i t a b l y l e v i e d on some k i n d of c a s h e x p e n d i t u r e , f o r example, f o o d , t o b a c c o , o r t r a n s p o r t . S i n c e t h e weight of nonmarket income d e c r e a s e s w i t h s i z e of income w h i l e l e a v i n g t a x e s p a i d a t t h e d i f f e r e n t incomes unchanged, a consequence of i n c l u d i n g nonmarket income i s e l i m i n a t i o n o f an e r r o r which wrongly i m p l i e s a n e x t r e m e l y r e g r e s s i v e t a x system. 11 - Krongkaew, Mehdi, The Income R e d i s t r i b u t i o n a l E f f e c t s of Taxes and P u b l i c E x p e n d i t u r e s i n T h a i l a n d : An I n t e r t e m p o r a l S t u d y , u n p u b l i s h e d d i s s e r t a t i o n , Department of Economics, Michigan S t a t e U n i v e r s i t y , 1976. The assumptions and l i m i t a t i o n s i n such work a r e a l s o s p e l l e d o u t a t l e n g t h i n t h e Krongkaew s t u d y . O n t h e t a x s i d e t h e methodology i s i d e n t i c a l . On t h e e x p e n d i t u r e s i d e t h e r e are s e v e r a l d e p a r t u r e s from t h e Krongkaew approach. 12 Chiswick, Carmel Ullman, "Regional D i f f e r e n c e s i n t h e D i s t r i b u t i o n of - Household Incomes i n T h a i l a n d , 1962-72," draft November 1977. 2.03 The n a t i o n a l income c o n c e p t n e a r l y i d e n t i c a l t o t h e Survey's c o n c e p t of t o t a l household incomes i s p e r s o n a l income. I n T a b l e 8 , t h i s i s d e r i v e d from r e t u r n s t o f a c t o r s of p r o d u c t i o n i n 1972 (B 133.7 b i l l i o n ) and i s e s t i m a t e d a t B 130.8 b i l l i o n . Were t h e r e no measurement e r r o r , t h i s t o t a l would e q u a l t h a t of t h e Survey. However, e r r o r s a r e numerous: t h e c o r r e c t i o n f o r i n f l a t i o n may have been e x c e s s i v e ; income i n k i n d may b e s y s t e m a t i c a l l y u n d e r v a l u e d ; and f o r HHs w i t h numerous s o u r c e s of income, t h e r e may b e a tendency t o f o r g e t c e r t a i n k i n d s a l t o g e t h e r . P e r h a p s d e l i b e r a t e u n d e r s t a t e m e n t of income by w e a l t h i e r h o u s e h o l d s h a s a n even g r e a t e r impact t h a n t h e two p r e c e d i n g e r r o r s . A s discussed i n t h e following s e c t i o n , t a x avoidance i s probably widespread i n T h a i l a n d , r e i n f o r c i n g t h e n a t u r a l r e l u c t a n c e of many well-off h o u s e h o l d s t o d i s c l o s e t h e i r incomes, p a r t i c u l a r l y t o a government i n t e r v i e w e r . T a b l e 6: INCOME I N K I N D AS A PERCENT OF MONEY INCOME, SURVEY DATA, 1972 Money Whole income c l a s s Northeast Bangkok North Central South Kingdom (B) Under 3 , 0 0 0 3,000- 5,999 6,000 - 8 , 9 9 9 9,000 - 11,999 12,000 - 14,999 15,000 - 17,999 1 8 , 0 0 0 and o v e r Mean A f i n a l s o u r c e of e r r o r i s due t o t h e f a c t t h a t household sample s u r v e y s i g n o r e the i n s t i t u t i o n a l population. The o u t p u t of monks and o t h e r r e l i g i o u s g r o u p s , a s w e l l a s of p r i s o n e r s and t h e m i l i t a r y i s e x c l u d e d . The n a t i o n a l a c c o u n t s which f o c u s o n a g g r e g a t e s from t h e p r o d u c t i o n s i d e a r e more l i k e l y t o e s t i m a t e most of such income. Presumably, t h i s s o u r c e of e r r o r i s a v e r y minor one b e c a u s e of t h e s m a l l s h a r e of t h e i n s t i t u t i o n a l p o p u l a t i o n i n t h e t o t a l and t h e i r v e r y low a v e r a g e economic o u t p u t . 2.04 A s a consequence of t h e s e s e v e r a l e r r o r s , a g g r e g a t e income g e n e r a t e d t h r o u g h s u r v e y s i s i n e v i t a b l y less t h a n t h e c o n c e p t u a l l y i d e n t i c a l p e r s o n a l income of t h e n a t i o n a l a c c o u n t s . Survey income a t B 83.9 b i l l i o n w a s b u t 64% of p e r s o n a l income, $130.8 b i l l i o n , i n 1972./1 - 2.05 Because t h e a g g r e g a t e s f o r n a t i o n a l income a r e more l i k e l y t o be c o r r e c t t h a n t h o s e of t h e s u r v e y t o t a l , we assume t h a t t h e d i s c r e p a n c y between t h e two, B 46.9 b i l l i o n , i s due t o u n r e p o r t e d income. F u r t h e r , a s n o t e d , t h e r e a r e v e r y good grounds f o r b e l i e v i n g t h a t u n d e r r e p o r t i n g i s q u i t e common. Consequently, as i n t h e e a r l i e r Krongkaew S t u d y , we d i s t r i b u t e 90%, B 42.2 b i l l i o n , of t h e assumed u n r e p o r t e d income i n p r o p o r t i o n t o household / 1 I n g e n e r a l , i n d e v e l o p i n g c o u n t r i e s , s u r v e y income f a l l s s h o r t of n a t i o n a l - a c c o u n t s income by a q u a r t e r o r more.  Table 7 : COMPONENTS OF BROAD INCOME NSO Survey Returns t o income Net government- Non- company Company owned f a c t o r s Money market Unreported Personal retained profit Indirect including Broad income income income income earnings taxes taxes public saving income B billion 73.2 10.7 46.9 130.8 1.8 1 .O 14.8 3.0 151.4 % of broad I income 48.3 7.1 31 .O 86.4 1.2 0.7 9.8 2.0 100.0 F Table 8: DERIVATION O F UNREPORTED INCOME, 1972 ( B i l l i o n s of Baht) National income 1972 ( n e t n a t i o n a l product a t f a c t o r c o s t ) Returns t o government-owned f a c t o r s of p r o d u c t i o n Public saving ( r e t a i n e d earnings) Saving of c o r p o r a t e s e c t o r ( r e t a i n e d e a r n i n g s ) Corporate income t a x T r a n s f e r s , domes t i c i n t e r e s t on p u b l i c debt T r a n s f e r s , government pensions P e r s o n a l income Survey income Unreported income incomes and t h e remaining 10% t o t h e h i g h e s t income c l a s s . I n p e r c e n t a g e s t h i s meant t h a t a l l HH incomes were i n c r e a s e d by 51% w h i l e t h o s e i n t h e h i g h e s t income b r a c k e t (household money incomes e x c e e d i n g B 30,000) were i n c r e a s e d by a n a d d i t i o n a l 9%. 2.06 Because of t h i s l a r g e d i s c r e p a n c y between s u r v e y income and n a t i o n a l a c c o u n t s income which c a n n o t b e f u l l y e x p l a i n e d , t h e a n a l y s i s must l i m i t i t s e l f t o broad comparisons and c o n c l u s i o n s , and i g n o r e c o n t r a s t s f o r which t h e r e is l i t t l e hard evidence. 2.07 The income concept b e i n g developed h e r e i s t h a t of income a s i t would be b e f o r e any government a c t i v i t y , i n o t h e r words, a t h e o r e t i c a l c o n s t r u c t o r l l c ~ u n t e r f a c t u a l . " / l What t h i s means is t h a t were we a b l e t o o p e r a t e a modern economy w i t h o u t government, t h e t a x e s s p e n t by government would become p a r t of household income. Survey income a d j u s t e d f o r under- r e p o r t i n g a l r e a d y i n c l u d e s t h e p e r s o n a l income t a x b u t t o c o n s t r u c t t h e c o u n t e r f a c t u a l o r h y p o t h e t i c a l e x a n t e income, we need t o add t o i t company p r o f i t t a x e s as w e l l a s i n d i r e c t t a x e s , n e i t h e r of which e n t e r s i n t o p e r s o n a l income. S i m i l a r r e a s o n i n g l e a d s t o an i n c l u s i o n of company-retained e a r n i n g s a s w e l l a s r e t u r n s t o government-owned f a c t o r s of p r o d u c t i o n ( s e e T a b l e 7 ) . 2.08 How t o a l l o c a t e such income n o t d i r e c t l y r e c e i v e d by H H s i s t h e n e x t i s s u e . C o n s i s t e n t w i t h Krongkaew's approach, we c o n c l u d e t h a t company p r o f i t t a x e s a r e passed on t o consumers and t h u s d i s t r i b u t e d a s household e x p e n d i t u r e s f o r company o u t p u t s . & With less t h e o r e t i c f o u n d a t i o n we a l s o assume t h a t were government f a c t o r s p r i v a t e l y owned, t h e i r r e t u r n s would b e d i s t r i b u t e d i n p r o p o r t i o n t o household incomes. E x p e n d i t u r e s a r e c l o s e l y c o r r e l a t e d t o income. Hence, w e s um company p r o f i t t a x e s and r e t u r n s t o government f a c t o r s and d i s t r i b u t e them i n , p r o p o r t i o n t o a l l income. The two components combined e q u a l o n l y 3.2% of e x a n t e broad income ( s e e T a b l e 7 ) . Consequently, a l t h o u g h t h e i r a l l o c a t i o n i s based on rough e s t i m a t e s , t h e i r s h a r e i n t h e t o t a l is s o small t h a t t h e o v e r a l l d i s t r i b u t i o n of incomes i s v e r y i n s e n s i t i v e t o any e r r o r s which may r e s u l t . 2.09 I n developed c o u n t r i e s , income from c a p i t a l i s d i s t r i b u t e d f a r more u n e q u a l l y t h a n income i n g e n e r a l . I n d e v e l o p i n g c o u n t r i e s , t h i s i s g f o r t i o r i t h e c a s e . I t i s l i k e l y t h a t n e a r l y a l l income from companies which pay company income t a x was r e c e i v e d by households w i t h incomes e x c e e d i n g B 30,000. Consequently, we a l l o c a t e a l l r e t a i n e d p r o f i t s t o t h i s h i g h e s t income b r a c k e t . T a b l e 7 p r e s e n t s t h e r e s u l t i n g e x a n t e broad income as B 151.4 b i l l i o n . C o n c e p t u a l l y , t h i s t o t a l i s c l o s e t o NNP, i.e. t o t a l o u t p u t a t market p r i c e s l e s s d e p r e c i a t i o n . /I For a d i s c u s s i o n of t h e problems i n v o l v e d i n t h e concept of e x a n t e income, s e e Meerman, J a c o b , "Do E m p i r i c a l S t u d i e s of Budget I n c i d e n c e Make Sense," P u b l i c F i n a n c e , Vol. XXXIII October 1978. The e s t i m a t i o n of e x a n t e income u s e s a p a r t i a l e q u i l i b r i u m framework which r e s u l t s i n s e r i o u s u n d e r e s t i m a t i o n of t h e e f f e c t of t h e r i c e premium on a g r i c u l t u r a l incomes. T h i s p o i n t i s d i s c u s s e d below i n p a r a . 2.35 /2 For t h e a r g u m e n t a t i o n l e a d i n g t o t h i s c o n c l u s i o n , s e e t h e Krongkaew ~- S t u d y , pp. 114 f f . 2.10 Table 11 on page 22 i n c l u d e s t h e d i s t r i b u t i o n of broad income i n p e r c e n t a g e terms f o r t h e e n t i r e country. The ex a n t e s i z e d i s t r i b u t i o n [columns ( 1 ) and ( 2 ) ] shows t h e u s u a l extreme i n e q u a l i t y : t h e h i g h e s t income b r a c k e t w i t h 6% of HHs r e c e i v e s 39% of income, a s much a s t h e t o t a l f o r t h e l o w e s t 80% of HHs. I f we d e f i n e t h e r a t e of income a s t h e r a t i o of p e r c e n t a g e of income t o p e r c e n t a g e of H H s, s o t h a t t h e mean r a t e e q u a l s one t h e n t h e p o o r e s t 27% had income a t o n l y a q u a r t e r of t h e mean (.26) and t h e h i g h e s t 6% a t a r a t e 6.55 t i m e s t h e mean, o r incomes a t a r a t e over 25 t i m e s h i g h e r t h a n t h e lowest 27%. Tax I n c i d e n c e 2.11 The approach used i n d i s t r i b u t i n g t a x burdens i s t h a t of t h e Krongkaew Study, and r e f l e c t s accepted t a x - i n c i d e n c e t h e o r y . For example, i n d i r e c t t a x e s burden t h e household purchasing t h e item t a x e d . Such t a x e s f a l l on v a r i o u s k i n d s of HH c a s h e x p e n d i t u r e , r a t h e r t h a n income. A l a r g e r s h a r e of t h e incomes of t h e poor a r e used f o r such e x p e n d i t u r e t h a n of t h e wealthy who both s a v e a l a r g e r income s h a r e and spend more on untaxed items such a s s e r v i c e s . ( I n d i r e c t t a x e s i n 1972 accounted f o r 77% of t h e t a x e s of t h e p o o r e s t 50% of H H s , whereas they equaled 69% of t o t a l t a x e s ) . For t h i s r e a s o n t h e burden of such t a x a t i o n i s r e g r e s s i v e i n economies w i t h v e r y low nonmarket income. I n T h a i l a n d , n o t w i t h s t a n d i n g t h e v e r y heavy counterweight of nonmarket income, p a r t i c u l a r l y among t h e poor, t h e overwhelming weight of such t a x e s makes f o r t h e s l i g h t r e g r e s s i v i t y of t h e t a x system. I n c o n t r a s t , t h e i n d i v i d u a l income t a x burdens t h e HH which pays t h e t a x , and s i n c e t h e r a t e s a r e p r o g r e s s i v e , t h e t a x i s u s u a l l y a p r o g r e s s i v e one.& 2.12 T h i s s e c t i o n aims a t a n o v e r a l l i n v e s t i g a t i o n of government f i s c a l a c t i v i t i e s , a s concerns t h e i n c i d e n c e of t a x burdens and e x p e n d i t u r e b e n e f i t s . Hence, t h e d e f i n i t i o n of t a x e s should b e a s comprehensive a s p o s s i b l e . Not only t h o s e t a x e s d e f i n e d a s compulsory revenue s o u r c e s , b u t a l s o a l l o t h e r government revenue s o u r c e s , such a s f e e s , proceeds from governmental s a l e s , and p r o f i t s from government e n t e r p r i s e s should b e examined. I f only some revenue i t e n s a r e i n c l u d e d when t h e d i s t r i b u t i v e impact of b o t h t a x e s and e x p e n d i t u r e s is b e i n g measured, t h e i n c i d e n c e would be d i s t o r t e d . T h i s p o s i t i o n i s adopted here - a s i n t h e e a r l i e r Krongkaew Study - because i t i s t h e most a p p r o p r i a t e f o r a t o t a l f i s c a l i n c i d e n c e s t u d y . Consequently, w e a l s o d i s t r i b u t e p u b l i c However, a s d i s c u s s e d below i n t h e m a t e r i a l on t a x a d m i n i s t r a t i o n , a l a r g e s h a r e of HHs w i t h h i g h incomes e s c a p e t h e income t a x s o t h a t a l t h o u g h p r o g r e s s i v e , i t i s n o t e q u i t a b l e . There i s s u b s t a n t i a l d i s a g r e e - ment a s t o t h e l o c u s of i n c i d e n c e of t h e company income t a x , of p r o p e r t y and of p a y r o l l t a x e s . Very thorough s t u d i e s u s e a l l c r e d i b l e combinations of i n c i d e n c e assumptions. I n t h e c a s e of T h a i l a n d , t h e c o n t r o v e r s i a l t a x e s account f o r 7.5% of t h e t o t a l (company income t a x 4.7%; p r o p e r t y t a x e s 2.8%; p a y r o l l t a x e s 0 % ) . The competing i n c i d e n c e assumptions do n o t l e a d t o extreme d i f f e r e n c e s i n where t h e burden f a l l s . T h i s , p l u s t h e s m a l l amounts involved meant t h a t t h e v a r i o u s i n c i d e n c e s c e n a r i o s g i v e v i r t u a l l y i d e n t i c a l r e s u l t s . F u r t h e r d e t a i l s on t h e i n c i d e n c e assumptions used h e r e a r e p r e s e n t e d i n Appendix T a b l e s A-13 and A-14. Readers i n t e r e s t e d i n a d d i t i o n a l i n f o r m a t i o n on t h e i n c i d e n c e of t h e v a r i o u s t a x e s a r e r e f e r r e d t o Krongkaew's Study, pp. 99-151. f e e s , r o y a l t i e s and o t h e r domestic r e c e i p t s of t h e Government./l The revenues d i s t r i b u t e d i n t h e Study a r e shown i n T a b l e 9 below: T a b l e 9: CENTRAL GOVERNMENT REVENUES, 1972 (amount i n m i l l i o n s of b a h t ) Type of Revenue Amount % I n d i v i d u a l income tax Company p r o f i t t a x Business t a x S e l e c t i v e sales t a x e s Import d u t i e s R i c e premiums Other e x p o r t t a x e s Taxes on p r o p e r t y R o y a l t i e s and p e r m i t s Government f e e s f o r s a l e s and s e r v i c e s Government monopolies Government e n t e r p r i s e s 0ther Total R e v e x 21 - 2 296.7 100 .O Source: T a b l e s 9 and 10 u s e d a t a from t h e Department of t h e C o n t r o l l e r General. These d a t a do n o t c o i n c i d e w i t h t h o s e used i n t h e Appendix t a b l e s and Chapter 1. The l a t t e r a r e d e r i v e d p r i m a r i l y from t h e C e n t r a l Bank, a c c o r d i n g t o d e f i n i t i o n s of t h e I n t e r n a t i o n a l Monetary Fund. / Using t h e more r i g o r o u s d e f i n i t i o n of t a x e s of Table A-1, 89% of t h e domestic r e c e i p t s of t h e Government w e r e t a x e s i n 1972. T a b l e 10: CENTRAL GOVERNMENT EXPENDITURES BY FUNCTIONAL CLASSIFICATION, 1972 (amount i n m i l l i o n s of b a h t ) Function Amount % 1. Economic s e r v i c e s 5,435.4 19.32 1.1 Agriculture 1.2 Power and f u e l 1.3 Industries 1.4 Transportation 1.5 Other economic s e r v i c e s 2. Education s e r v i c e s 5,317.3 18.90 2.1 Primary 2.2 Secondary & v o c a t i o n a l 2.3 Higher 2.4 Other 3. H e a l t h and s o c i a l w e l f a r e 2,509.8 8.92 4. General s e r v i c e s 11,560.5 41.08 4.1 Defense 4.2 Law en£ orcement 4.3 Public administration 4.4 Other 5. Payments on p u b l i c d e b t 3,317.7 11.79 Total expenditures 28,140.7 100.00 Source: See T a b l e 9. Beneeit I n c i d e n c e 2.13 The t h e o r y of b e n e f i t - i n c i d e n c e from government e x p e n d i t u r e i s even l e s s s e t t l e d t h a n t h a t of t a x i n c i d e n c e . Much of t h i s i s due t o t h e l a c k of i n t e r e s t i n t h i s i s s u e u n t i l t h e l a s t decade. Rather t h a n r e c a p i t u - l a t e t h e c u r r e n t d e b a t e concerning b e n e f i t i n c i d e n c e , we simply s t a t e t h e r e a s o n i n g and r u l e s f o r a l l o c a t i n g t h e v a r i o u s p u b l i c e x p e n d i t u r e s across beneficiary HHs./l / For d e t a i l e d d i s c u s s i o n of t h i s t h e o r y , s e e McLure, C h a r l e s , "On t h e Theory and Methodology of E s t i m a t i n g B e n e f i t and Expenditure Inc,idence," Paper p r e s e n t e d t o t h e Workshop on Income D i s t r i b u t i o n and i t s Role i n Development, R i c e U n i v e r s i t y , Houston, Texas, 1974. See a l s o Meerman, Jacob, "The D i s t r i b u t i o n of P u b l i c Expenditures i n P e n i n s u l a r Malaysia," World Bank, manuscript 1977, Chapter 2. 2.14 C e n t r a l government e x p e n d i t u r e s a r e d i s t r i b u t e d by f u n c t i o n i n T a b l e 10. Of t h e s e , we d i s t r i b u t e t r a n s p o r t a t i o n (9.95%), e d u c a t i o n s e r v i c e s (18.9%), and h e a l t h and s o c i a l w e l f a r e (8.92%) a c r o s s b e n e f i t i n g HHs. The p u b l i c c o s t s of t h e s e s e r v i c e s a r e a t t r i b u t e d t o consuming HHs a c c o r d i n g t o t h e d i s t r i b u t i v e r u l e s of Appendix T a b l e s A-15 and A-16. 2.15 A l l o c a t i n g e x p e n d i t u r e f o r t r a n s p o r t a t i o n i s more complicated. Of t h e B 2,799.6 m i l l i o n included i n item 1.4 of Table 10, 91% i s f o r highway t r a n s p o r t . I f road-using v e h i c l e s i n Thailand are c l a s s i f i e d i n t o t h r e e main t y p e s , passenger c a r s , buses and t a x i s , and t r u c k s , t h e p r o p o r t i o n s i n 1972 were about 60% t r u c k s , 25% buses and t a x i s and 15% p r i v a t e passenger c a r s . It i s assumed t h a t 15% of t o t a l highway e x p e n d i t u r e s i n 1972 were i n c u r r e d on behalf of H Hs i n t h e t o p income b r a c k e t , s i n c e only t h i s group c a n a f f o r d t o own passenger c a r s . Twenty-five p e r c e n t of highway spending i s a t t r i b u t e d t o all H H s according t o t h e p a t t e r n of t h e i r e x p e n d i t u r e s on t r a n s p o r t s e r v i c e s f o r b u s e s and t a x i s . I n Thailand, a s elsewhere, most goods and s e r v i c e s i n c l u d e highway t r a n s p o r t a s a small component of t h e i r v a l u e added. Thus, r e l a t i v e HH e x p e n d i t u r e s a r e probably a f a i r approximation of t h e d i s t r i b u t i o n of b e n e f i t s from government e x p e n d i t u r e on highways a s embodied i n t h e v a r i o u s items H H s consumed. Consequently, t h e remaining 60% of highway e x p e n d i t u r e was a l l o c a t e d i n p r o p o r t i o n t o HH e x p e n d i t u r e s . 2.16 Although i n t h e o r y a l l o c a b l e by HH b e n e f i c i a r i e s , we have made no a t t e m p t t o a l l o c a t e t h e remaining economic s e r v i c e s . With t h e e x c e p t i o n of a g r i c u l t u r e (8.9% of e x p e n d i t u r e ) , t h e s e s e r v i c e s account f o r 1.4% of t o t a l c e n t r a l government e x p e n d i t u r e s o t h a t t h e i r d i s t r i b u t i v e e f f e c t must b e small. The r e a s o n f o r excluding a g r i c u l t u r e i s t h e i m p o s s i b i l i t y of d i s t r i - b u t i n g e x p e n d i t u r e s i n a s a t i s f a c t o r y manner. One problem h e r e i s t h e complexity of l a n d t e n u r e arrangements. Although owner-operators a r e t h e most common form of t e n u r e , t e n a n t s and n o n c u l t i v a t i n g land-owners a r e a l s o important . How t h e d i s t r i b u t i o n of s u b s i d i e s t o f a c t o r s used t o produce an a s s o c i a t e d a g r i c u l t u r a l output b e n e f i t s t h e s e v a r i o u s groups i s i m p o s s i b l e t o say. I n g e n e r a l , i t seems t h a t p r o d u c t i o n s u b s i d i e s i n a g r i c u l t u r e b e n e f i t overwhelmingly t h e producers, who a l s o i n c l u d e l a n d l e s s l a b o r e r s , purveyors of farm i n p u t s and many merchants. Any a t t e m p t t o d e t e r m i n e t h e d i s t r i b u t i o n of p r o d u c t i o n s u b s i d i e s among t h e s e groups was beyond our r e s o u r c e s . So even t h e "simple" c a s e where t h e r e a r e no b e n e f i t s f o r consumers remains extremely complicated. 2.17 A f u r t h e r c o m p l i c a t i o n i n v o l v e s t h e p u b l i c c h a r a c t e r of such subsidies a s d r a i n a g e and f l o o d c o n t r o l works which p r o v i d e s e r v i c e s h i g h l y valued by producers HHs as consumers, b u t because b e n e f i t s from such works a r e v e r y widespread, any e s t i m a t i o n of t h e i r v a l u e i s impossible. 2.18 F i n a l l y , t h e e f f e c t s of c e r t a i n p r o d u c t i o n s u b s i d i e s such a s l o a n s o r s u b s i d i z e d i n p u t s , e.g. s e e d l i n g s and i r r i g a t i o n w a t e r , a r e n e i t h e r immediate n o r s h o r t - l i v e d and t h e temporal d i s t r i b u t i o n of r e s u l t i n g b e n e f i t s (income flows) i s extremely complex. Even i f w e set t h e p r e s e n t v a l u e of b e n e f i t s a s e q u a l t o c o s t s , s e r i o u s problems remain. I n s h o r t n o t only a r e t h e r e s e r i o u s d i f f i c u l t i e s i n i d e n t i f y i n g b e n e f i c i a r i e s , but a l s o i n identi- f y i n g t h e r e l a t i o n between t h e flow of b e n e f i t s over t i m e and c o s t s - 2.19 Were w e t o examine t h e remaining economic s e r v i c e s i n d e t a i l , we would f i n d s i m i l a r c o m p l i c a t i o n s ; d i s t r i b u t i o n of c o s t s a c c o r d i n g t o bene- f i c i a r i e s may b e p o s s i b l e i n p r i n c i p l e , b u t i n p r a c t i c e , i t i s i m p o s s i b l e . 2.20 General public outlays f o r defense, i n t e r n a l s e c u r i t y , general a d m i n i s t r a t i o n and diplomacy c a n b e combined a s p u b l i c overhead e x p e n d i t u r e (POE). I n s t u d i e s of b u d g e t i n c i d e n c e t r e a t m e n t of POE i s always v e r y u n s a t i s f a c t o r y . They c a n b e s e e n as a p e c u l i a r k i n d of c o s t o r h y b r i d goods, r a t h e r t h a n f i n a l goods t o b e a l l o c a t e d by b e n e f i c i a r y . The r e a s o n f o r such c l a s s i f i c a t i o n i s t h a t t h e s e e x p e n d i t u r e s are u n a v o i d a b l e i f t h e r e i s t o b e a t o l e r a n t community a t a l l . While t h e common i n t e r m e d i a t e goods h a v e v a l u e b o t h as t h e o u t p u t of c e r t a i n i d e n t i f i a b l e f i r m s and t h e i n p u t of c e r t a i n i d e n t i f i a b l e f i r m s , p u b l i c overhead e x p e n d i t u r e makes p o s s i b l e pro_d_ction i n g e n e r a l and c_onsumption i n g e n e r a . I t i s a n i n p u t i n t o n e a r l y a l l o u t p u t s b u t i n c o m p l e t e l y u n s p e c i f i a b l e f a s h i o n . Kuznets t o o k t h i s p o s i t i o n when h e concluded t h a t t h o s e p u b l i c e x p e n d i t u r e s which r e f l e c t " t h e c o s t of membership i n our b u s i n e s s c i v i l i z a t i o n " s h o u l d b e e x c l u d e d from t h e n a t i o n a l income.& I n t h i s v i e w , t h e b e n e f i t s from POE are HH incomes themselves. 2.21 But t h e b e n e f i t c a l c u l u s i s f a r more c o m p l i c a t e d . Presumably POE b r i n g s a f e e l i n g of s e c u r i t y c o n c e r n i n g l i f e and p r o p e r t y which i s a f u n c t i o n of t h e amount of POE p r o v i d e d , w h i l e e n s u r i n g t h e p e r s i s t e n c e of t h e e x i s t i n g p o l i c y and s o c i a l i n s t i t u t i o n s , a l t h o u g h many i n d i v i d u a l s may p r e f e r a l t e r n a - t i v e s s o t h a t t h e i r b e n e f i t s from POE are n e g a t i v e . Beyond t h a t i t i s u n c l e a r , e v e n f o r t h o s e who d e s i r e POE, how t h e y f e e l a b o u t changes i n i t s l e v e l o r c o m p o s i t i o n . I n T h a i l a n d , f o r example, t h e m a j o r i t y of t h e p o p u l a t i o n i s unaware of changes i n t h e c o m p o s i t i o n and s i z e of e x p e n d i t u r e s f o r d e f e n s e , g e n e r a l a d m i n i s t r a t i o n , and s o f o r t h . I t is a l s o c l e a r t h a t t h e m a j o r i t y d o e s n o t c o n c e r n i t s e l f w i t h how t h e d e c i s i o n s on POE are made. A t b e s t t h e r e i s o n l y t h e l o o s e s t c o n n e c t i o n between t h e d e s i r e s of t h e p o p u l a t i o n and government d e c i s i o n s o n POE. Under s u c h c i r c u m s t a n c e s g e t t i n g any i d e a of m a r g i n a l b e n e f i t s , a s p e r c e i v e d by HHs, would a p p e a r i m p o s s i b l e . 2.22 The common a p p r o a c h i n i n c i d e n c e work i s t o i g n o r e t h o s e c o m p l e x i t i e s and t r e a t POE as s i m p l e f i n a l p u b l i c goods whose c o s t s are a l l o c a t e d by some a r b i t r a r y f o r m u l a t o t h e b e n e f i t i n g HHs. The f a v o r i t e f o r m u l a i s a s c r i b i n g b e n e f i t s i n p r o p o r t i o n t o HH incomes, w h i l e assuming c o s t s and b e n e f i t s e q u a l . T h i s a p p r o a c h h a s e x a c t l y t h e same e f f e c t o n t h e measurement of r e l a t i v e b u d g e t i n c i d e n c e as t h e a s s u m p t i o n t h a t b e n e f i t s from POE c a n n o t b e d i s t r i b u t e d by HH. Hence, whether one b e l i e v e s t h a t POE d o e s n o t e n t e r t h e HH u t i l i t y f u n c t i o n o r t h e o p p o s i t e , t h e e f f e c t of POE on HH income d i s t r i - b u t i o n c a n p l a u s i b l y b e made i d e n t i c a l i n b o t h c a s e s . 2.30 I n t h i s s t u d y , we t a k e t h e Kuznets p o s i t i o n and do n o t a l l o c a t e g e n e r a l e x p e n d i t u r e s , which a c c o u n t f o r o v e r two f i f t h s of t h e t o t a l . Hence /A K u z n e t s , Simon, " N a t i o n a l Income, A New V e r s i o n , " Review of Economics and S t a t i s t i c s . , Volume 30, 1948. I n t h e n i n e t e e n t h c e n t u r y d e b a t e on j u s t t a x a t i o n , t h e A b i l i t y - t o - P a y S c h o o l i n e f f e c t t o o k t h e same p o s i t i o n . See Meerman, J a c o b "Are P u b l i c Goods, P u b l i c Goods," P u b l i c Choice, forthcoming . t h e budget i n c i d e n c e t a b l e s presented below n e c e s s a r i l y conclude w i t h t a x e s s u b s t a n t i a l l y exceeding b e n e f i t s . 2.31 F i n a l l y , i n t e r e s t payments on p u b l i c d e b t a r e a l s o not d i s t r i b u t e d . I n s t u d i e s of budget i n c i d e n c e , r e s e a r c h e r s f r e q u e n t l y t r e a t such " t r a n s f e r payments" a s b e n e f i t s t o t h e HHs which d i r e c t l y o r i n d i r e c t l y ( t h r o u g h f i n a n c i a l i n s t i t u t i o n s ) own government s e c u r i t i e s . Obviously, such HHs have purchased t h e s e c u r i t i e s , much a s they have purchased any o t h e r a s s e t . Their ownership of t h e s e c u r i t i e s g i v e s them a c l a i m t o payments o u t of government r e s o u r c e s . I t i s c l e a r l y a quid-pro-quo s i t u a t i o n . To t r e a t t h e government i n t e r e s t payment a s a n u n r e q u i t e d b e n e f i t a n a l y t i c a l l y i d e n t i c a l t o b e n e f i t s from s o c i a l s e r v i c e s does n o t make s e n s e . I n t e r e s t payments a r e i n t h e n a t u r e of an overhead e x p e n d i t u r e . I n a s t u d y o f t h i s k i n d , i t makes more s e n s e t o a s k who pays f o r them, t h a n who r e c e i v e s them. Results . . 2.32 Table 11 p r e s e n t s t h e b a s i c a n a l y t i c a l r e s u l t s u s i n g broad income a s t h e base. W e have a l r e a d y d i s c u s s e d t h e d i s t r i b u t i o n of income a s r e f l e c t e d i n column ( 2 ) of Table 11. As i n d i c a t e d i n column ( 4 ) , t h e i n c i d e n c e of t h e t a x system i s w e l l d e s c r i b e d a s e x h i b i t i n g a "wandering p r o p o r t i o n a l i t y " w i t h r e s p e c t t o HH incomes. Although t h e lowest c l a s s has t h e h i g h e s t percentage burden (16.8%) and t h e h i g h e s t t h e lowest (13.1%) both r a t e s a r e c l o s e t o t h e mean (14.2%). The d i s t r i b u t i o n i s bimodal with a second peak t a x r a t e (15.4%) f o r t h e s i x t h income c l a s s . Because of t h e e r r o r s i n the d a t a , an e x a c t measure of i n c i d e n c e i s a s l i k e l y t o s u g g e s t o v e r a l l propor- t i o n a l i t y a s s l i g h t r e g r e s s i v i t y . Given t h e overwhelming weight of regres- s i v e i n d i r e c t t a x e s i n T h a i l a n d ' s t a x system, t h e p r o p o r t i o n a l outcome i s s u r p r i s i n g u n t i l we r e c a l l t h e weight of nonmarket income, and t h e r e f o r e , untaxed income, i n t h e t o t a l s f o r t h e p o o r e s t groups. R e c a l l t h a t i n Table 6 f o r t h e lowest income c l a s s (money income under B 3,000) income i n kind i n c r e a s e s t h e t o t a l 113%; f o r t h e group w i t h money incomes B 3,000 t o B 6,000 t h e i n c r e a s e i s 42%. I n c o n t r a s t f o r a l l t h o s e w i t h money incomes a t o r over B 18,000, t h e i n c r e a s e averages o n l y 2.6%. One i m p l i c a t i o n suggested by t h i s p a t t e r n i s t h a t i n t h e f u t u r e a s poor HHs i n t e g r a t e more f u l l y i n t o market p r o d u c t i o n , t h e e x i s t i n g t a x system w i l l become i n c r e a s - ingly regressive. 2.33 This p r e d i c t i o n l e a d s t o t h e q u e s t i o n of r e s t r u c t u r i n g t a x e s t o r e l i e v e t h e poor. Nearly a l l t a x e s paid by t h e poor a r e i n d i r e c t ( t a x t y p e s 3., 4., 5., 6., 7., and 11. i n Table 9 ) . Yet, t h e p o o r e s t 50% of HHs accounted f o r o n l y 14% of t a x e s i n 1972, while i n d i r e c t t a x e s accounted f o r 69% of t h e t o t a l . Since i t i s p r a c t i c a l l y impossible t o d i s c r i m i n a t e among t a x p a y e r s with r e s p e c t t o i n d i r e c t t a x e s , t h e Government might need t o g i v e up almost 70% of domestic revenue t o r e l i e v e the poor of a burden which accounts f o r o n l y 14% of t o t a l domestic revenues. Such "leakage" makes t h e proposal impossible i n view of immediate p o l i c y g o a l s , p a r t i c u l a r l y given t h e need f o r r e s o u r c e s t o fund t h e c o u n t r y ' s ambitious development program.& However, i n /1 T h i s sweeping conclusion somewhat o v e r s t a t e s t h e d i f f i c u l t y i n r e l i e v i n g - t h e poor of t a x e s . Careful review of e x c i s e s and customs d u t i e s might r e v e a l s p e c i f i c h i g h l y taxed i t e m s whose market i s predominantly t h e poor ( n o t t o mention p r o h i b i t i v e t a r i f f s on items which the poor would consume i n t e n s e l y were they a v a i l a b l e ) . t h e long r u n , a s argued i n t h e f o l l o w i n g s e c t i o n on t a x p o l i c y , t h e Government needs t o reduce i t s dependence on i n d i r e c t t a x e s and move toward g r e a t e r emphasis o n income and p r o p e r t y taxes.11 - 2.34 There i s some concern t h a t t h e income d i s t r i b u t i o n d a t a f o r 1971-73 a r e too u n r e l i a b l e f o r u s e f u l a n a l y s i s i n c l u d i n g t a x i n c i d e n c e . Therefore com.paring our r e s u l t s w i t h Krongkaew's f o r 1969 and 1963 c o u l d h e l p determine whether t h e d i f f e r e n c e s a r e c o n s i s t e n t w i t h e v e n t s s i n c e 1969. Table l l a p r e s e n t s Krongkaew's r e s u l t s f o r 1963 and 1969, a s w e l l a s t h e corresponding r e s u l t s f o r 1972. There i s o n l y one a p p a r e n t i n c o n s i s t e n c y i n t h e t h r e e s e r i e s . The p r o p o r t i o n of HHs w i t h incomes over B 18,000 c o n t i n u a l l y i n c r e a s e s a s might be expected i n a growing and s l o w l y i n f l a t i n g economy. Since t h e r a t i o of d i r e c t t o i n d i r e c t t a x e s d i d n o t change g r e a t l y d u r i n g t h e decade covered, one would n o t expect v e r y s u b s t a n t i a l changes i n t h e p a t t e r n of i n c i d e n c e a c r o s s HH incomes. And indeed change of t h i s s o r t was minimal. Tax r a t e s e x h i b i t t h e c h a r a c t e r i s t i c "wandering p r o p o r t i o n a l i t y , " f o r a l l t h r e e y e a r s . And i n a l l c a s e s , t h e t a x r a t e of t h e p o o r e s t was above t h a t of t h e h i g h e s t income c l a s s . Moreover, t h e p o o r e s t a r e always above t h e mean, t h e r i c h e s t below i t . The one apparent i n c o n s i s t e n c y i s the i n c r e a s e of 3 . 3 p e r c e n t a g e p o i n t s i n t h e number of HHs i n t h e p o o r e s t income c l a s s in-1972 over 1969, s i n c e both t h e economy and value added i n a g r i c u l t u r e grew substan- t i a l l y o v e r t h e s e t h r e e y e a r s . As d i s c u s s e d e a r l i e r , t h i s o n l y r e f l e c t s t h e approximate c h a r a c t e r of t h e income d a t a . N e v e r t h e l e s s , e v e r y t h i n g e l s e s u g g e s t s t h a t they a r e s u f f i c i e n t l y v a l i d t o be u s e f u l f o r i n c i d e n c e work./2 - /1 - I n d e r i v i n g t h e income d i s t r i b u t i o n , t h e assumption was t h a t 10% of unreported income belonged i n t h e h i g h e s t income c l a s s w h i l e t h e remaining 90% was d i s t r i b u t e d i n p r o p o r t i o n t o s u r v e y income ( i n c l u d i n g income i n k i n d ) . I f i n f a c t unreported income i s mainly c o n c e n t r a t e d a t t h e top of t h e d i s t r i b u t i o n , then we have a l s o underestimated t h e r e g r e s s i v i t y of t h e t a x s y s tern. /2 Comparison w i t h Krongkaew's r e s u l t s on e x p e n d i t u r e s was impossible - because of t h e s u b s t a n t i a l changes i n methodology between t h e two s t u d i e s .  Table 11: BUDGET INCIDENCE, (SHORT-TERM BACKWARDS) WHOLE KINGDOM, 1972 B e n e f i t Rates (1) (2 (3) (4) (5) (6 (7) (8 (9) (10) Mean broad b ante FX a n t e Health Net Ex p o s t Mean expendi- income i n Percentage percentage r a t e of Tax and tax r a t e s of t u r e s on c l a s s (B)/a of households of income income rate Education w e l f a r e Transport T o t a l rate income behalf of HH 1. 6,123 27.4 7.0 .26 16.8 4.5 5.4 2.8 12.8 4.0 .27 795 2. 10,472 23.1 10.0 .43 14.9 3.8 1.1 2.2 7.1 7.8 .43 756 I 3. 15,089 13.7 8.5 .62 14.2 3.8 1.8 1.8 7. 6.8 .62 1,121 u t N 4. 20,176 9.1 7.6 .84 14.3 3.6 2.5 1.9 8.0 6.3 .84 1,624 I 5. 25,121 6.5 6.7 1.03 14.8 3.6 2.5 1.8 7.8 7.0 1.03 1,997 6. 30,156 3.7 4.5 1.22 15.4 3.8 4.1 1.5 9.3 6.1 1.23 2,836 7. 41,131 9.7 16.4 1.69 14.3 5.4 1.3 1.4 8.1 6.2 1.71 2,648 8. 139,852 6.0 39.3 6.55 13.1 3.1 0.6 1.8 5.5 7.6 6.52 7,701 Total 2 4 , 2 5 0 L 100.0 100.0 1.00 14.2 3.5 1.7 1.8 7.0 7.2 1 .OO 1,713 1 /a The corresponding money i n c a e range f o r each c l a s s i s g i v e n i n Table 6. - The components of broad income a r e aggregated i n Table 7. The percentage i n c r e a s e i n broad income over money income v a r i e s from c l a s s t o c l a s s . Hence t h e ranges of I t h e broad income c l a s s e s o v e r l a p . - /b Mean personal income is B 21,851. 2.35 I n d e r i v i n g e x a n t e income, t h e p e r s p e c t i v e was e s s e n t i a l l y " s h o r t - r u n backwards." I n o t h e r words, t h e a n a l y s i s i n v o l v e s a p a r t i a l e q u i l i b r i u m framework i n which t h e r e t u r n s t o f a c t o r s of p r o d u c t i o n and o t h e r p r i c e s a r e assumed t o be independent of government a c t i v i t y , as t h e y would be i n t h e s h o r t r u n . I n T a b l e 1 1 , f o r example, e x a n t e income i s presumably a b o u t what i t would be i n a c o m p l e t e l y p r i v a t e economy, t a k i n g t e c h n o l o g y , f a c t o r endowments, and above a l l , r e l a t i v e p r i c e s as g i v e n . I n f a c t , t h e t a x on r i c e and o t h e r a g r i c u l t u r a l e x p o r t s d e p r e s s e s t h e p r i c e of farm o u t p u t s . Of t h e s e , r i c e i s t h e most s i g n i f i c a n t . / l The consequence of r i c e t a x a t i o n i s a s u b s t a n t i a l h i d d e n t a x on t h e r i c e p g d u c e r i n t h e form of a d e p r e s s e d p r i c e o f rice. The p r i c e of r i c e (and o t h e r e x p o r t e d o u t p u t s ) i s f u r t h e r d e p r e s s e d by t a x e s on i m p o r t s (3.4% of GDP i n 1 9 7 2 ) , which r e d u c e t h e demand f o r Table l l a : TAX INCIDENCE 1963, 1969, 1972 1963 1969 - 1972 Money % % of X % of % X of income of broad Tax of broad Tax of broad Tax class HH income rate HH income rate HH income rate (B) under 3,000 48.1 19.8 12.3 24.1 6.0 13.0 27.4 7 .O 16.8 3,000 - 5,999 20.8 14.5 12.1 23.8 11.9 11.5 23.1 10.0 14.9 6,000 - 6,899 19.5 24.0 11.1 16.0 11.6 12.7 13.7 8.5 14.2 9,000 - 11,999 19.5 24.0 11.1 9.9 9.0 13.5 9.1 7.6 14.3 12,000 - 14,999 5.8 11.3 11.8 6.8 7.1 15.1 6.5 6.7 14.8 18,000 - 17,999 5.8 11.3 11.8 4.6 5.9 14.6 3.7 4.5 15.4 18,000 and o v e r 5.7 30.5 11.3 14.8 48.5 12.3 15.7 55.7 13.6 Total 100.0 100.0 11.3 100.0 100.0 12.7 100.0 100.0 14.2 /a - Income r a n g e s of some income c l a s s e s o v e r l a p b e c a u s e income-in-kind has been added t o money income. f o r e i g n exchange and t h u s d e p r e s s t h e f o r e i g n exchange v a l u e of e x p o r t s . (The e f f e c t o f t r a d e t a x a t i o n on a g r i c u l t u r a l incomes i s t r e a t e d i n t h e following s e c t i o n ) . Since a g r i c u l t u r a l producers, including r i c e producers, a r e c o n c e n t r a t e d i n t h e lower h a l f of t h e income d i s t r i b u t i o n , c o n s i d e r a t i o n o f t h e s e g e n e r a l e q u i l i b r i u m a s p e c t s i m p l i e s t h a t i n t h e l o n g e r term t h e t a x system i s s e r i o u s l y r e g r e s s i v e . In s h o r t , i n general equilibrium perspective, T a b l e 11 s e r i o u s l y u n d e r s t a t e s t h e r e g r e s s i v i t y of t h e t a x system. 2.36 T a b l e 11 a l s o examines t h e spending s i d e . The b e n e f i t r a t e s - a n a l o g o u s t o t a x r a t e s - a r e p r e s e n t e d f o r e d u c a t i o n , t r a n s p o r t , and h e a l t h and w e l f a r e . Again t h e p a t t e r n i s one of "wandering p r o p o r t i o n a l i t y " w i t h t h e e x c e p t i o n of t h e l o w e s t income c l a s s whose t o t a l b e n e f i t r a t e i s 12.8%, compared t o t h e mean of 7.0%. The m a j o r r e a s o n f o r t h e h i g h b e n e f i t r a t e f o r t h e l o w e s t income c l a s s i s t h e presumed c o n c e n t r a t i o n of w e l f a r e e x p e n d i t u r e on t h e p o o r e s t group. I t i s i n t e r e s t i n g t h a t of t h e t h r e e e x p e n d i t u r e s , - /1 Export t a x e s on r i c e were low i n 1972, b u t have been a s e r i o u s burden i n other recent years. t h a t which comes c l o s e s t t o b e i n g c l e a r l y pro-poor ( a l g e b r a i c a l l y r e g r e s s i v e ) i s t r a n s p o r t . Equally noteworthy i s t h e f a c t t h a t f o r a l l t h r e e s e r v i c e s t h e lowest income c l a s s (27.4% of HHs) e n j o y s c o n s i d e r a b l y above a v e r a g e consump- t i o n w h i l e t h e o p p o s i t e i s t r u e f o r t h e h i g h e s t income c l a s s a s concerns w e l f a r e and, t o some d e g r e e , e d u c a t i o n . 2.37 When we d e r i v e t h e n e t t a x r a t e ( t a x r a t e -t o t a l benefits rate), we a g a i n end w i t h "wandering p r o p o r t i o n a l i t y " w i t h t h e e x c e p t i o n of t h e lowest income c l a s s whole n e t t a x r a t e (4%) which i s only 56% of t h e mean (7.2%). For a l l o t h e r income c l a s s e s t h e n e t t a x r a t e i s a t l e a s t 85% and no more than 109% of t h e mean r a t e . Thus, i n terms of t h e r a t e of incomes, budget a c t i v i t y makes v e r y l i t t l e d i f 5 e r e n c e . h There i s about a 4% improve- ment i n income s h a r e f o r t h e lowest c l a s s , and h a r d l y any d i f f e r e n c e f o r any o t h e r group. Again, however, we need t o r e c a l l t h a t t h i s i s t h e "short-run backwards" p e r s p e c t i v e . W e are seriously understating tax regressivity because of t h e d e p r e s s i n g e f f e c t s of f o r e i g n t r a d e t a x a t i o n on a g r i c u l t u r a l incomes. The n e t t a x r a t e of t h e f o u r lowest income c l a s s e s i s s e r i o u s l y u n d e r e s t i m a t e d , u s i n g a more meaningful p e r s p e c t i v e i n which r e l a t i v e p r i c e s are variable- 2.38 The above d i s c u s s i o n t e n d s t o s u g g e s t t h a t i n normative p e r s p e c t i v e a d i s t r i b u t i o n a l l y n e u t r a l budget i s one i n which t h e n e t t a x r a t e - as d e f i n e d above - i s e q u a l f o r a l l income c l a s s e s . T h i s would f o l l o w i f we b e l i e v e d t h a t t h e e x a n t e income d i s t r i b u t i o n were o p t i m a l , which i s n o t t h e c a s e . A more u s e f u l outlook i s one i n which i d e a l l y t a x a t i o n should be a c c o r d i n g t o a b i l i t y - t o - p a y , t h a t i s , c o n s i s t e n t w i t h d e c l i n i n g marginal u t i l i t y of income, w h i l e b e n e f i t s should be i n a c c o r d , n o t w i t h ex a n t e incomes, b u t w i t h need. Need could be measured a s a n e g a t i v e f u n c t i o n of r e l a t i v e income, assuming n e a r l y i d e n t i c a l HH u t i l i t y f u n c t i o n s . A s i m p l e r s o l u t i o n i s t o d e f i n e a s a norm t h a t t h e c o s t s of b e n e f i t s b e e q u a l f o r a l l H H s w h i l e i n s i s t i n g on a p r o g r e s s i v e t a x system. 2.39 Using t h i s normative approach, we c a l c u l a t e d t h e combined p u b l i c e x p e n d i t u r e p e r HH f o r e d u c a t i o n , h e a l t h and w e l f a r e , and t r a n s p o r t . These appear a s t h e f i n a l column i n Table 11. They a r e q u i t e c l e a r l y a n i n c r e a s i n g f u n c t i o n of income, w i t h a v e r y d r a m a t i c l e a p f o r t h e h i g h e s t income c l a s s whose b e n e f i t s a r e t e n times a s h i g h p e r HH a s they a r e f o r t h e lowest 50%.D These r e s u l t s p l u s t h e f a c t of a r e g r e s s i v e t a x system s u g g e s t t h a t Thailand's f i s c a l mechanism does l i t t l e t o promote t h e w e l f a r e of t h e poor. 11 Presumably, however, governments enhance t h e q u a l i t y of l i f e by producing p h y s i c a l i n f r a s t r u c t u r e , e n f o r c i n g r u l e s of conduct f o r economic and o t h e r human a c t i v i t y , p r o v i d i n g s e c u r i t y of l i f e and p r o p e r t y and s o f o r t h . I n b r i e f , t h e "inframarginal" b e n e f i t s of t a x e s and e x p e n d i t u r e should be very l a r g e . 12 Number of persons p e r HH i s a n e g a t i v e f u n c t i o n of mean HH income p e r HH member. Were we a b l e t o express e x p e n d i t u r e b e n e f i t s i n each income c l a s s per c a p i t a o r per a d u l t e q u i v a l e n t , t h e i n e q u a l i t y i n t h e b e n e f i t d i s t r i b u t i o n would i n c r e a s e even f u r t h e r - 2.40 E d u c a t i o n a l d a t a can b e used t o make t h i s c o n c l u s i o n somewhat more c o n c r e t e l y . P u b l i c e d u c a t i o n e x p e n d i t u r e s p e r MI i n t h e h i g h e s t income c l a s s e s a r e a t l e a s t t h r e e times a s h i g h a s i n any of t h e lowest s i x c l a s s e s . A major r e a s o n f o r t h i s outcome i s t h e c o n c e n t r a t i o n of b e n e f i t s from h i g h e r e d u c a t i o n among t h e w e a l t h i e s t H H s. For example, i n 1972, about 60% of t h e e n t e r i n g s t u d e n t s a t Thammasat U n i v e r s i t y were from H H s i n t h e h i g h e s t income q u a r t i l e . S i m i l a r evidence e x i s t s f o r Chulalonghorn.fl T h i s s u g g e s t s t h a t t h e u n i v e r s i t i e s should b e g i n t o d i s t i n g u i s h between r i c h and p o o r , and a t t e m p t t o reduce t h e l a r g e s u b s i d y f o r h i g h e r e d u c a t i o n which t h e r i c h r e c e i v e . ( S t u d e n t f e e s pay a s m a l l p a r t of t h e c o s t of t h e u n i v e r s i t i e s ) . Gearing t h e s u b s i d y t o need, by i n c r e a s i n g f e e s f o r t h e w e a l t h i e r s t u d e n t s , w h i l e i n t r o d u c i n g a system of e d u c a t i o n a l l o a n s might be a very s e n s i b l e policy. 2.41 The b a s i c normative c o n c l u s i o n of i n e g a l i t a r i a n budget i n c i d e n c e i s c o n s i s t e n t w i t h t h e c o n v e n t i o n a l b e l i e f concerning t h e pro-urban and pro- a f f l u e n t b i a s i n t h e d i s t r i b u t i o n of p u b l i c s e r v i c e s . What i n i t i a l l y seems i n c o n t r a d i c t i o n t o t h i s c o n v e n t i o n a l o u t l o o k , namely a n e t b e n e f i t r a t e which w a s below t h e average f o r t h e r i c h ( t h a t i s t h e urban p o p u l a t i o n ) r e f l e c t s t h e f a c t t h a t a l t h o u g h p u b l i c b e n e f i t s measured i n b a h t s p e r HH d i s t r i b u t e v e r y u n e q u a l l y , incomes a r e d i s t r i b u t e d even more unequally. 2.42 The n e t t a x r a t e ( g r o s s t a x e s minus b e n e f i t s ) can b e i n t e r p r e t e d a s t h e payment f o r i n t e r n a l and e x t e r n a l s e c u r i t y p l u s c e n t r a l a d m i n i s t r a t i o n (41% of t o t a l e x p e n d i t u r e i n 1972), payment on t h e p u b l i c d e b t (11.8% of t h e t o t a l ) and u n a l l o c a t e d economic s e r v i c e s (9.3% of t h e t o t a l ) . I n developed c o u n t r i e s with very s i z e a b l e welfare t r a n s f e r s , t h e n e t t a x r a t e f o r t h e lowest q u a r t i l e of t h e income d i s t r i b u t i o n i s u s u a l l y n e g a t i v e . Thailand's p o s i t i v e n e t t a x r a t e f o r t h e lowest 27% of HHs - a r a t e which would b e f a r h i g h e r could we measure t h e hidden burden of t r a d e t a x a t i o n - is t y p i c a l of developing c o u n t r i e s where a l l groups pay f o r such e x p e n d i t u r e . N e v e r t h e l e s s , t h i s outcome i s n o t i n e v i t a b l e . Some developing c o u n t r i e s w i t h l a r g e l y p r o p o r t i o n a l t a x systems b u t h e a v i l y e g a l i t a r i a n e x p e n d i t u r e end w i t h a budget mechanism which r e d i s t r i b u t e s s u b s t a n t i a l l y i n f a v o r of t h e poor. There i s no t e c h n i c a l - as opposed t o p o l i t i c a l - r e a s o n why Thailand could n o t e v o l v e a similar e g a l i t a r i a n p a t t e r n of i n c i d e n c e . 2.43 T a b l e 12 p r e s e n t s t h e b a s i c p a t t e r n f o r r e g i o n a l incidence. The mean t a x r a t e f o r Bangkok/Thonburi (21.5%) is 51% above t h e Whole Kingdom r a t e , w h i l e t h e remaining r e g i o n s v a r y more c l o s e l y about t h e mean. F u r t h e r e x p e n d i t u r e r a t e s a r e d i s t r i b u t e d f a r more c l o s e l y about t h e mean than t a x e s . When we come t o t h e n e t t a x r a t e ( g r o s s t a x r a t e minus b e n e f i t r a t e ) we have a p o s i t i v e r e l a t i o n between HE income, a s measured i n t h e f i r s t column, and n e t t a x r a t e , e x c e p t f o r t h e South, whose income is below average, and whose n e t t a x r a t e c o n s i d e r a b l y exceeds t h e mean. Thus, Bangkok/Thonburi c o n t r i b u t e s a s u b s t a n t i a l n e t q u a n t i t y of p u b l i c r e s o u r c e s f o r t h e development of t h e N o r t h e a s t , North and C e n t r a l regions. ' Unpublished s t a t i s t i c a l d a t a on e n t e r i n g s t u d e n t s a t Thammasat U n i v e r s i t y 1972-1974. S i l p a r n a n t , Shanka and Chatkupta Chuta, "Report on P e r s o n a l Expenditures of S t u d e n t s a t Chulalonghorn U n i v e r s i t y " , pp. 105-107. 2.44 Again, i f we move t o a more e g a l i t a r i a n p e r s p e c t i v e i n which t a x e s should be p r o g r e s s i v e w h i l e b e n e f i t s a r e e q u a l per HH, a p i c t u r e s i m i l a r t o t h a t of t h e p r e v i o u s t a b l e evolves. The r e g i o n a l n e t t a x r a t e i s s l i g h t l y p r o g r e s s i v e , n o t w i t h s t a n d i n g t h e anomalous s i t u a t i o n of t h e South. However, e x p e n d i t u r e s on behalf of H Rs have a v e r y i n e g a l i t a r i a n d i s t r i b u t i o n w i t h Bangkok r e c e i v i n g about t h r e e times a s much a s any o t h e r r e g i o n , w h i l e t h e remaining r e g i o n s a r e below t h e mean w i t h l i t t l e i n t r a g r o u p v a r i a n c e . Table 12: BUDGET INCIDENCE (SHORT-TERM BACKWARDS) BY REGION, 1972 Mean Ex a n t e r a t e Tax Benefit Net t a x e x p e n d i t u r e s on of income rate rate rate behalf of H Hs Whole Kingdom 1.00 14.2 7.0 7.2 1,713 Northeast 0.62 11.1 9.0 2.1 1,389 Bangkok/Thonbur i 2.49 21.5 7.5 14 0 4,612 North 0.85 10.9 7.0 3.9 1,451 Central 1.23 12.1 5.3 6.8 1,584 South 0.87 14.9 6.1 8.6 1,311 2.45 W e a l s o converted t h e r e s u l t s t o G i n i c o e f f i c i e n t s t o f a c i l i t a t e comparison w i t h t h e e a r l i e r Krongkaew Study. These a r e g i v e n i n Table 12a and c l e a r l y show a s u b s t a n t i a l i n c r e a s e i n income i n e q u a l i t y , whether measured i n money o r broad income between 1972 and 1969 o r 1963. N e v e r t h e l e s s , because of t h e u n c e r t a i n q u a l i t y of t h e d a t a on which t h e c o e f f i c i e n t s a r e based, i t i s b e s t t o r e g a r d t h i s c o n c l u s i o n a s t e n t a t i v e , r a t h e r t h a n d e f i n i t e . For a l l t h r e e y e a r s , t h e r e s u l t s a r e i d e n t i c a l i n showing no e f f e c t of budget a c t i v i t y on r e l a t i v e income p o s i t i o n s : b o t h ex a n t e and e x p o s t , t h e G i n i coefficients are virtually identical. Table 12a: G I N 1 COEFFICIENTS 1963, 1969, 1972 Ex a n t e Ex a n t e Ex p o s t Year money income broad income broad income 2.46 A good way t o c h a r a c t e r i z e Thailand's p a t t e r n of budget i n c i d e n c e - a s i n d i c a t e d by t h e preceding a n a l y s i s - i s l a i s s e z - f a i r e n e u t r a l , a p a t t e r n which l a r g e l y r e f l e c t s t h e i n t e r p l a y of t r a d i t i o n a l v a l u e s , ownership of r e s o u r c e s , and p o l i t i c a l f o r c e s . However, t h i s may u n d e r s t a t e t h e p a t t e r n ' s general regressivity. As shown i n T a b l e 1 1 , t h e n e t t a x r a t e f o r t h e most a f f l u e n t q u i n t i l e i s below t h e mean. And as w e have s e e n , heavy t a x a t i o n of f o r e i g n t r a d e i m p l i e s an even lower g e n e r a l e q u i l i b r i u m t a x r a t e f o r t h i s q u i n t i l e because it i s more a consumer t h a n a p r o d u c e r of farm p r o d u c t s . A t t h e same t i m e , t h e i t e m s f o r which i t s consumption i s h e a v i e s t , namely t h o s e w i t h income e l a s t i c i t y e x c e e d i n g o n e , a r e o f t e n untaxed o r taxed a t low r a t e s : s e r v a n t s , l a n d , owner-occupied h o u s i n g , f o r e i g n t r a v e l , f o r e i g n e d u c a t i o n , and g a s o l i n e . Thus f a r i n T h a i l a n d , t h e p u b l i c s e c t o r i s s m a l l ; t h e r i c h have managed t o keep most of t h e i r incomes, and have a broad range of i t e m s on which t o spend them. TAX POLICY AND ADMINISTRATION General Considerations 3.01 The s e c t i o n on g e n e r a l t r e n d s showed t h e r a p i d l y e v o l v i n g t a x s t r u c t u r e : t h e growth of income t a x e s , waning t r a d e t a x e s and t h e r e c e n t overwhelming dependence on t u r n o v e r and e x c i s e t a x e s . Table 1 3 d e s c r i b e s t h e major t a x e s . The e v o l v i n g p a t t e r n p l u s i n f o r m a t i o n i n t h e t a b l e s u g g e s t t h a t t h e t a x system i s b a s i c a l l y sound and t h a t by improving a d m i n i s t r a t i o n and reforming e x i s t i n g t a x e s , a s t r u c t u r e more c o m p a t i b l e w i t h a c c e p t e d i d e a s of b o t h a j u s t and a n e f f i c i e n t t a x system c a n be achieved. 3.02 However, a t p r e s e n t , t h e r e a r e d e f e c t s . F i r s t t h e r e i s t h e s t a g - n a t i n g t a x t o GNP r a t i o . Given t h e Government's a m b i t i o u s development p l a n s , a s w e l l as t h e l a r g e p o p u l a t i o n w i t h uncovered b a s i c needs ( u p p e r l e v e l e l e m e n t a r y e d u c a t i o n , medical c a r e , d i f f u s i o n of modern a g r i c u l t u r a l t e c h n o l o g y , p u r e w a t e r ) , t h e p o s s i b l e b e n e f i t s of a h i g h e r r a t i o a r e s e l f - e v i d e n t . 3.03 Second, t h e t a x system i s r e g r e s s i v e . T h i s r e f l e c t s t h e low s h a r e o f p r o g r e s s i v e income t a x e s and heavy dependence on i n d i r e c t t a x a t i o n . Not o n l y do t u r n o v e r t a x e s and e x c i s e s - which a r e g e n e r a l l y b o r n e by t h e con- sumer - imply a h e a v i e r r e l a t i v e burden f o r t h e poor t h a n t h e r i c h , b u t t h e r e l i a n c e on t r a d e t a x a t i o n h a s meant a s u b s t a n t i a l r e d u c t i o n i n t h e e f f e c t i v e d o m e s t i c p r i c e of r i c e and o t h e r e x p o r t s w i t h a n e t s u b s i d y t o t h e b e t t e r - o f f urban population. Thus, T h a i l a n d i s a l o n g way from a c h i e v i n g t h e " v e r t i c a l e q u i t y " of a p r o g r e s s i v e t a x system. 3.04 It i s a l s o obvious t h a t " h o r i z o n t a l e q u i t y , " t h e e q u a l t a x a t i o n o f t h o s e w i t h e q u a l incomes, i s f a r from a r e a l i t y . Wage e a r n e r s i n l a r g e f i r m s and p u b l i c employees t y p i c a l l y pay income t a x e s i n f u l l . Because of non- and u n d e r - r e p o r t i n g , owners and workers i n s m a l l f i r m s f r e q u e n t l y e s c a p e income t a x e s a l t o g e t h e r . T a x a t i o n of income from l e a s i n g p r o p e r t y , c a p i t a l g a i n s , i n t e r e s t , d i v i d e n d s and t h e l i b e r a l p r o f e s s i o n s i s a l s o v e r y uneven, b o t h because of unequal t r e a t m e n t i n law and t h e h i g h l y v a r i a b l e w i l l i n g n e s s and a b i l i t y t o evade. T r i p l i c a t e bookkeeping /1 and f o r small f i r m s no bookkeeping a r e common. 11 - A v a l i d s e t , a s e t f o r t h e t a x - c o l l e c t o r , and a second s e t when t h e c o l l e c t o r i n s i s t s o n s e e i n g t h e r e a l s e t . Ingram, James C., Economic Change i n T h a i l a n d 1850-1970 ( S t a n f o r d U n i v e r s i t y P r e s s , S t a n f o r d , 1971), p. 186. 3.05 The t a x s t r u c t u r e i s a l s o i n e f f i c i e n t . The c o n p a n y / c o r p o r a t e s e c t o r , p a r t i c u l a r l y r e g i s t e r e d companies, i s taxed h e a v i l y b e c a u s e of i t s r e l a t i v e l y good bookkeeping, h i g h v i s i b i l i t y , and t h e n a t u r e of t h e t a x laws which t a x c o r p o r a t e income t w i c e , i n i t i a l l y a s p r o f i t s , s e c o n d l y as t h e d i v i d e n d s forming p a r t of p e r s o n a l incomes. No o t h e r form of e n t e r p r i s e i n Thailand has d o u b l e income t a x a t i o n . Moreover, a s s u g g e s t e d i n Table 13 t h e n a t u r e of t h e " b u s i n e s s tax" i s such a s t o l e a d t o "cascadingf' e f f e c t s : g r o s s r e c e i p t s a r e taxed a d valorem a t s e v e r a l i n t e r m e d i a t e l e v e l s w i t h a burden on f i n a l o u t p u t which may v a r y s u b s t a n t i a l l y from p r o d u c t t o product. Thus, some goods may b e p e n a l i z e d and o t h e r s taxed t o o l i g h t l y , i n t h e s e n s e t h a t e q u a l r a t e s of t a x on v a l u e added would l e a d t o s u b s t a n t i a l s h i f t s i n t h e p a t t e r n of p r o d u c t i o n w i t h g r e a t e r consumer s a t i s f a c t i o n t h e r e s u l t . 3.06 More i m p o r t a n t l y , t h e p r e s e n t forms of t a x a t i o n of t h e a g r i c u l t u r a l s e c t o r a r e p a r t i c u l a r l y i n e f f i c i e n t . The t a x e s on f o r e i g n t r a d e i n e f f e c t d e p r e s s t h e p r i c e of e x p o r t s , o b v i o u s l y , by t a x i n g e x p o r t s , b u t a l s o by r e d u c i n g demand f o r f o r e i g n exchange through t a x e s on imports. S i n c e e x p o r t s a r e nearly a11 a g r i c u l t u r a l , t h i s policy n o t only implies s u b s t a n t i a l l y diminished farm incomes, b u t a l s o diminished a g r i c u l t u r a l o u t p u t and a s a consequence, lower t o t a l e x p o r t s . & A b e t t e r t a x on t h e a g r i c u l t u r a l p o p u l a t i o n would be on l a n d , t h e f i x e d f a c t o r . T h i s would encourage i t s more e f f e c t i v e u s e w h i l e n o t d i s c o u r a g i n g a g r i c u l t u r a l production. 3.07 F i n a l l y , t h e t a x system may b e t g o c e n t r a l i z e d . L o c a l governments have minute t a x b a s e s , and l e g i s l a t i o n g r e a t l y limits them i n e x p l o i t i n g t h e most s i g n i f i c a n t b a s e t h a t t h e y d o have, namely p r o p e r t y , and p a r t i c u l a r l y l a n d . The i n c r e a s i n g emphasis on a c c e l e r a t e d r u r a l development i m p l i e s g r e a t e r need f o r l o c a l autonomy and r e s o u r c e s . More e f f e c t i v e p r o p e r t y t a x a t i o n , i n l i e u of t a x a t i o n of a g r i c u l t u r a l e x p o r t s , would t h e r e f o r e promote n o t o n l y a l l o c a t i o n a l e f f i c i e n c y b u t a l s o t h e d e c e n t r a l i z a t i o n which a c c e l e r a t e d r u r a l development may r e q u i r e . Income T a x a t i g n 3.08 The p r o g r e s s i v e p e r s o n a l income t a x - were t h e r e l i t t l e e v a s i o n - would b e d e s i r a b l e a s concerns e q u i t y , e f f i c i e n c y , and e l a s t i c i t y . The e q u i t y c o n s i d e r a t i o n s are obvious. As concerns e f f i c i e n c y , t h e major s t r i c t u r e i s t h a t i t r e d u c e s t h e r e l a t i v e p r i c e of l e i s u r e which may have u n d e s i r a b l e e f f e c t s on people's w i l l i n g n e s s t o work. However, i n any r e a l world s i t u a t i o n , t h i s e f f e c t i s most . l i k e l y minimal and i t i s of l i t t l e account i n Thailand. A s concerns e l a s t i c i t y , c l e a r l y a w e l l f u n c t i o n i n g p r o g r e s s i v e t a x , i n an economy w i t h i n c r e a s i n g f a m i l y incomes, w i l l automa- t i c a l l y c a p t u r e an i n c r e a s i n g s h a r e of r e s o u r c e s . These c o n s i d e r a t i o n s e x p l a i n t h e p o p u l a r i t y of t h i s t a x among tax-designers, n o t w i t h s t a n d i n g t h e a d m i n i s t r a t i v e problems which i t p r e s e n t s . T h i s c o n c l u s i o n needs some q u a l i f i c a t i o n . H i s t o r i c a l l y , e x p o r t t a x a t i o n h a s f a l l e n most h e a v i l y on r i c e . I n r e c e n t decades some f a r m e r s t u r n e d t o p r o d u c t i o n of more p r o f i t a b l e a l t e r n a t i v e s such a s maize, t a p i o c a and sugar. Even w i t h o u t r i c e t a x a t i o n i n many c a s e s , such p r o d u c t i o n i s t h e s u p e r i o r a l t e r n a t i v e . I t can b e , and h a s been argued t h a t heavy r i c e t a x a t i o n provided a needed i n c r e a s e d impetus f o r developing such a l t e r n a - t i v e s . Whatever t h e c a s e , i t i s probable t h a t continued heavy t a x a t i o n of r i c e i s n o t needed f o r f u t u r e a g r i c u l t u r a l development.  Table 13: BRIEF DESCRIPTION OF MAJOR TAXES Relative tax Tax Base Rates growthk Comment Business Gross r e c e i p t s of 0 t o 40%, most con- e ) most r e t a i l s a l e s . 23 1.11 Turnover t a x w i t h "cascading" e n t e r p r i s e s in- sumer goods a t 7% income of l i b e r a l a s tax is levied a t various cluding importers professions, exporters l e v e l s of p r o d u c t i o n Companies Net p r o f i t s of 30% f o r companies e ) b e n e f i t s from i n v e s t - 10 1.86 I f a n i n d i v i d u a l owns more income c o r p o r a t i o n s , p a r t n e r - r e g i a t e r e d on t h e menr i n c e n t i v e s 'aw t h a n h a l f of a n e n t e r p r i s e , s h i p s , companies s t o c k exchange; the tax i s a t personal o t h e r s 35% r a t h e r t h a n company r a t e s Personal P e r s o n a l incomes, For t a x a b l e incomes e ) e a c h spouse B 5,000, 8 1.03 Spouses p e r m i t t e d t o d e c l a r e income i n c l u d i n g incomes <B 10,000 r a t e is 7% each c h i l d B 2.000 individually. Standard de- from s o l e p r o p r i e - and f o r t a x a b l e d u c t i o n s f o r nonlabor torships incooe> B 1,000,000 income a r e u n l i m i t e d and r a t e i s 60% w i t h pro- range from 10% t o 90% of g r e s s i v e schedule i n income. Taxpayers w i t h e a r n e d between incomes e x c e e d i n g B 30,000 a r e s u b j e c t t o a minimum t a x of 0.5% of earned income. T h i s t a x g e n e r a t e s s i z e a b l e revenues p a r t i c u l a r l y o u t s i d e of Bangkok. Excises b i n l y motor f u e l , V a r i a b l e a p e c i f i c and Petroleum p r o d u c t s , t o b a c c o , t o b a c c o , beverages. ad valorem and b e v e r a g e s , u s u a l l y a l c o h o l i c , Also matches, each account f o r a b o u t a t h i r d cement, f r u i t of t o t a l t a x r e c e i p t s . juices Imports Potentially the Occasionally zero e ) c e r t a i n i m p o r t s under 24 tiachinery equipment and v e h i c l e s 2.000 i t e m s of o r over IOOX, p r o v i s i o n s of investment account f o r 30 t o 40% of t o t a l Brussels Tariff generally within promotion l e g i s l a t i o n revenues, petroleum products system r a n g e of 10-802 l e s s t h a n 5%. Business t a x ( s e e above) a l s o a p p l i e s t o many imports. Exports Rice, rubber, Vary g r e a t l y f o r e ) r e - e x p o r t s of imports 4 0.604 H i s t o r i c a l l y taxing r i c e exporta wood, s i l k , h i d e s r i c e over time e ) companies w i t h b e n e f i t s h a s been a major s o u r c e of under investment promo- revenue. I n r e c e n t y e a r s r i c e t i o n laws revenues have f a l l e n w h i l e rubber revenues have exceeded t h o s e of rice. Local Land Variable but development e x t r e m e l y low e ) l a n d u s e f o r ovner A major revenue f o r l o c a l g w e r n - r e s i d e n c e o r annual ments. Local governments m a i n t a i n c r o p s by o v n e r - o p e r a t o r r e a s o n a b l y up-to-date c a d a s t r e s , p a r t l y o r f u l l y exempt. t h u s p o t e n t i a l revenue i s high; e x t r e m e l y low burden r e l a t i v e t o owner's income o r v a l u e of property. House and Manufacturing and 12.52 of annual d ) t w o - t h i r d s of t a x f o r The l a r g e s t l o c a l l y a d m i n i s t e r e d rent commercial rent b u i l d i n g s w i t h t o o l s and t a x and revenue s o u r c e . Because building machinery of e v a s i o n and undervalued a s s e s s - ments, t a x c u r r e n t l y imposes a n e x t r e m e l y low burden r e l a t i v e t o owner's income o r v a l u e of pro- perty. Royalties Property Land b u i l d i n g s 2% transfer Motor v e h i c l e Motor v e h i c l e s Annual, p r o g r e s s i v e C o l l e c t e d by N a t i o n a l registra- w i t h weight Police for local jurisdic- tion tion. Stamp d u t y Commercial B I p e r check, o r 0.77 These d u t i e s were i n c r e a s e d documents b i l l of lading, v a r i a b l e manyfold i n November 1977. f o r l e t t e r s of c r e d i t , a r t i c l e s of i n c o r p o r a - tion, etc. Bank I n t e r e s t on bank 10% e) time d e p o s i t s of new new A f t e r 1983 i n t e r e s t income, interest de~osits 6 months o r l e s s i n 1977 i n 1977 n o t exempted t o be s u b j e c t e d t o f u l l p e r s o n a l income t a x . Central LOO 1.02 government taxes a / P e r c e n t a g e of c e n t r a l government t a x e s i n 1976-77. - /b ( P e r c e n t a g e i n c r e a s e i n t a x ) / ( ~ e r c e n t a g e i n c r e a s e i n GNP) f o r t h e p e r i o d 1970-77 - /C Excludes p r o f i t s of f i s c a l monopolies. - Id I n c l u d e s rice-premium. 3.09 I d e a l l y , t h e p e r s o n a l income t a x should have s e v e r a l f e a t u r e s which i t does n o t have i n Thailand: (a) The t a x should f a l l on a l l household income. T h i s i n c l u d e s farm incomes, imputed income from owner-occupied h o u s i n g , t i p s , c a p i t a l g a i n s , s m a l l f i r m income, and s o f o r t h . Farm income and owner-occupied housing a r e exempted by law, b u t v e r y l i t t l e t a x i s c o l l e c t e d on t h e o t h e r t y p e s of income. I n t h e c a s e of owner- occupied housing, s i n c e such housing h a s a n income e l a s t i c i t y exceeding one, t h i s e x c l u s i o n c l e a r l y r e d u c e s t h e p e r s o n a l income t a x ' s p r o g r e s s i v i t y . Probably one r e a s o n f o r e x c l u d i n g i t i s t h e d i f f i c u l t y i n i t s e s t i m a t i o n , a l t h o u g h i n t h e l o n g e r run t h i s problem could be s o l v e d , a t l e a s t i n t h e c i t i e s . S i m i l a r l y , t h e q u a s i l e g a l exemption of c a p i t a l g a i n s - e x c e p t short-term on g a i n s from t h e s t o c k market - a l s o r e d u c e s t h e income t a x ' s p r o g r e s s i v i t y . A g r i c u l t u r a l income i s a l s o excluded from t h e income t a x , probably because of t h e extreme d i f f i c u l t y of d e t e r m i n i n g such incomes. T h i s w i l l c o n t i n u e f o r t h e f o r e s e e a b l e f u t u r e b u t t h e i d e a of a n income t a x on a g r i c u l t u r a l income should n o t b e completely abandoned. (b) Were a l l income taxed through t h e p e r s o n a l income t a x , t h e r e might be no need f o r d i s c r i m i n a t o r y t a x a t i o n of p r o f i t s of corpora- t i o n s and p a r t n e r s h i p s . A t p r e s e n t i n T h a i l a n d , i t i s l i k e l y t h a t some c o r p o r a t i o n s and l a r g e companies paying t h e companies' income t a x b e a r a h i g h e r t a x burden t h a n o t h e r less conspicuous e n t e r p r i s e s which can avoid much of t h e t a x . Moreover, i t i s a l s o l i k e l y t h a t , on average, t h e l a r g e f i r m s b e a r an unduly l a r g e s h a r e of b u s i n e s s t a x e s because t h e i n f o r m a t i o n on them a v a i l a b l e t o t h e Revenue Department i s l i k e l y t o b e b e t t e r t h a n f o r i n d i v i d u a l l y owned e n t e r p r i s e s . I n a d d i t i o n , income such a s d i v i d e n d s which h a s been taxed under t h e companies' income t a x i s t a x e d a second time a s p e r s o n a l income. One e f f e c t of t h i s i s a d e p r e s s e d r a t e of growth of c o r p o r a t i o n s which because of t h e way t h e y o r g a n i z e r e s o u r c e s may n o t be conducive t o Thailand's economic development. N e v e r t h e l e s s , because t h e e v a s i o n problem i s s o p r e v a l e n t , i t may b e w i s e t o c o n t i n u e t o t a x company p r o f i t s d i r e c t l y and e v e n t u a l l y g r a n t a t a x c r e d i t e q u a l t o t h e t a x p a i d t o t h e owners which can be used t o reduce t h e i r p e r s o n a l income t a x e s (assuming g r o s s p r o f i t s a r e i n c l u d e d i n t h e i r t a x a b l e income). I n d i v i d u a l s w i t h a m a r g i n a l p e r s o n a l income t a x r a t e exceeding t h e company t a x r a t e would need t o pay more t h a n t h e c r e d i t i n company income r e c e i v e d . Those w i t h lower marginal p e r s o n a l income t a x r a t e s would have an i n c e n t i v e t o d e c l a r e t h e i r company income s i n c e p a r t of t h e company t a x c r e d i t would apply a g a i n s t t h e p e r s o n a l income t a x due on o t h e r s o u r c e s of income. I t might be d e s i r a b l e t o implement such a change i n t r a n c h e s , i n which t h e t a x c r e d i t i s i n i t i a l l y s u b s t a n t i a l l y less t h a n t h e company income t a x p a i d . T h i s c o u l d , s a y i n c o n j u n c t i o n w i t h an e f f o r t t o reduce company t a x e v a s i o n , g r a d u a l l y b e i n c r e a s e d t o t h e f u l l c r e d i t . The i m p o r t a n t long-term g o a l t o b e achieved i s t h a t a l l p e r s o n a l income should be s u b j e c t t o income t a x once and no income should b e a r a double income t a x .  (c) I d e a l l y , t h e t a x payer should i t e m i z e t h e a c t u a l c o s t of g e n e r a t i n g b u s i n e s s o r p r o f e s s i o n a l income f o r computing t h e p e r s o n a l income t a x . Under t h e p r e s e n t system, where i n d i v i - d u a l s own more t h a n h a l f an e n t e r p r i s e , t h e p e r s o n a l r a t h e r t h a n t h e company income t a x a p p l i e s . And because of t h e d i f f i c u l t i e s i n keeping f i n a n c i a l r e c o r d s , r a t h e r than e s t i - mate n e t income, c o s t s a r e assumed t o b e e q u a l t o s t a n d a r d d e d u c t i o n r a t e s a s a p e r c e n t of g r o s s r e c e i p t s ( s e e Table 14). Net income i s , t h e r e f o r e , g r o s s r e c e i p t s l e s s t h e s t a n d a r d d e d u c t i o n f o r imputed c o s t s a s a p e r c e n t a g e of g r o s s r e c e i p t s . I f a c t u a l c o s t s exceed the s t a n d a r d d e d u c t i o n , t h e taxpayer may c l a i m a l a r g e r deduction. However, t h e r e i s no p r o v i s i o n whereby t h e Government i n s i s t s on u s e of a c t u a l c o s t s where t h e s e a r e s u b s t a n t i a l l y below t h e s t a n d a r d deductions. The 1974 Study p r e s e n t e d evidence t h a t i n d i c a t e d s u b s t a n t i a l t a x l o s s because of t h i s procedure and i t recommended t h a t t h o s e paying t a x on b u s i n e s s and p r o f e s s i o n a l incomes above B 250,000 should be r e q u i r e d t o i t e m i z e a c t u a l c o s t s and n o t b e allowed t o u s e t h e s t a n d a r d deductions. T h i s i s a good s u g g e s t i o n and a s t e p toward t a x a t i o n according t o c a l c u l a t e d n e t income. a T--b l e 14 . : - STANDARD DEDUCTION RATES, ~ - - - - - Rate Income from employment and s e r v i c e 20%, b u t no more t h a n B 30,000 Royalty, i n t e r e s t , dividends, e t c . No deduction Lncome from l e a s i n g Buildings Land f o r a g r i c u l t u r a l u s e Land f o r o t h e r purposes Vehicles Other p r o p e r t y Income from l i b e r a l p r o f e s s i o n s Income of c o n t r a c t o r s Income from b u s i n e s s , i n d u s t r y , o t h e r occupation Mining Bricklaying Laundry R e s t a u r a n t , p r e p a r i n g food and d r i n k f o r s a l e Prizes, horse racing /a P r i o r t o t h e t a x changes of November 1977 t h e r a t e was 30%. 3.10 The 1974 Study a l s o recommended i n c r e a s i n g t h e e f f e c t i v e r a t e of income t a x by r e d u c i n g o r e l i m i n a t i n g exemptions f o r i n t e r e s t income. T h i s would n o t only i n c r e a s e revenues, b u t would a l s o promote e q u i t y . However, t h e r e may a l s o be s u b s t a n t i a l o p p o r t u n i t i e s f o r i n c r e a s i n g income t a x revenues through r e d u c i n g t a x avoidance. I f avoidance i s widespread, i t i s l i k e l y t h a t t h e r e i s a l s o a g r e a t d e a l of d i s p a r i t y i n t a x a t i o n among e q u a l s . T h i s t s u g g e s t s t h a t t h e G ~ v e r n m e n t ' s ~ c u r r e n emphasis on improving t a x adminis- t r a t i o n may b e p r e f e r a b l e t o an emphasis on i n c r e a s i n g r a t e s , a t l e a s t u n t i l t h e most important t y p e s of e v a s i o n a r e l a r g e l y e l i m i n a t e d . I t may even be t h a t taxpayer compliance i s e l a s t i c w i t h r e s p e c t t o l e v e l of income t a x r a t e s . S l i g h t l y lower r a t e s i n a c o n t e x t of more s t r i n g e n t t a x enforcement might b e t h e most c o s t - e f f e c t i v e means of a c h i e v i n g a g i v e n i n c r e a s e i n revenues. ( T h i s i s only a h y p o t h e s i s . The o p p o s i t e might a l s o b e t h e case). Treatment of C a p i t a l Gains 3.11 A s n o t e d , c a p i t a l g a i n s (and l o s s e s ) should a l s o be i n c l u d e d i n income and t r e a t e d , f o r t a x purposes, a s o t h e r income. A t p r e s e n t - w i t h t h e e x c e p t i o n of short-term g a i n s ' o n s e c u r i t i e s t r a d e d on t h e s t o c k exchange - c a p i t a l g a i n s a r e i n p r a c t i c e untaxed. No a t t e m p t i s made t o i n c l u d e c a p i t a l g a i n s on s a l e s of f i n a n c i a l a s s e t s (bonds, mortages, long-term s e c u r i t y p r o f i t s ) i n t a x a b l e income. And a most important s o u r c e of c a p i t a l g a i n s , s a l e s of r e a l e s t a t e , i s e x p l i c i t l y excluded from income t a x a t i o n i n t h e m a j o r i t y of c a s e s , because p r o f i t s d e r i v e d from t h e sale of p r o p e r t y "which i s n o t f o r t h e purpose of t r a d e o r o b t a i n i n g ~ r o f i t "a r e excluded from t a x a b l e income ( S e c t i o n 4 2 ( 9 ) of t h e Revenue Code). Because of t h e d i f f i c u l t y of e s t a b l i s h i n g t h a t a t r a n s a c t i o n was " f o r t h e purpose of o b t a i n i n g p r o f i t , " v i r t u a l l y a l l g a i n s from r e a l e s t a t e s a l e s e s c a p e t a x a t i o n , w i t h t h e major e x c e p t i o n of t h o s e made by o f f i c i a l r e a l e s t a t e d e a l e r s . N e v e r t h e l e s s , i n t h e c a s e of l a n d i n p a r t i c u l a r , a rise i n v a l u e i s u s u a l l y a n unearned increment t o t h e income of t h e owner and should be taxed when r e a l i z e d . 3.12 S i n c e such p r o f i t s a r e f r e q u e n t l y r e a l i z e d on urban r e a l e s t a t e , a r e v e r s a l of t h e revenue code i s needed t o i n c l u d e urban p r o p e r t y c a p i t a l g a i n s i n t a x a b l e income. The t e c h n i c a l problems involved a r e n o t overwhelming. I n d i v i d u a l t a x p a y e r s should b e made r e s p o n s i b l e f o r self-assessment of c a p i t a l g a i n s from s a l e of l a n d and b u i l d i n g s on t h e i r i n d i v i d u a l income t a x forms. Any income (and l o s s e s ) s o generated should b e r e p o r t e d and a d j u s t e d by t h e c o s t - o f - l i v i n g index, r e t r o a c t i v e t o an agreed d a t e of a p p l i c a t i o n . To reduce o p p o s i t i o n from t a x p a y e r s , i t might make s e n s e t o u s e t h e d a t e of enactment of c a p i t a l g a i n s t a x a t i o n a s t h e f u r t h e s t r e t r o a c t i v e d a t e f o r c a l c u l a t i o n of g a i n s . F i n a l l y , i n t h e c a s e of r e a l i z i n g v e r y l a r g e g a i n s (and l o s s e s ) , i t may b e d e s i r a b l e t o permit t h e i r d i s t r i b u t i o n over a number of y e a r s , t h u s s p r e a d i n g t h e t a x burden. 3.13 - E v e n t u a l l y , g a i n s (and l o s s e s ) on a l l a s s e t s f i n a n c i a l and real - should b e included i n t a x a b l e income. For t h e n e a r f u t u r e , a f o c u s on urban r e a l e s t a t e a l o n e appears d e s i r a b l e . The Revenue Department could develop t h e c a p a c i t y t o a d m i n i s t e r any such change, and t h e l i k e l y i n c r e a s e i n revenues would make development of such c a p a c i t y d e s i r a b l e . L a t e r , o t h e r forms of c a p i t a l g a i n s could a l s o be g r a d u a l l y included i n t a x a b l e income, s o t h a t t h e r e would b e c o n t i n u a l p r o g r e s s toward r e a l i z a t i o n of t h e b a s i c p r i n c i p l e : i n c l u s i o n of a l l forms of income i n t h e t a x a b l e income base. Trade T a x a t i o n 3.14 A g r e a t d e a l h a s been w r i t t e n a b o u t t a x a t i o n of f o r e i g n t r a d e , p a r t i c - u l a r l y t h e t a x a t i o n of r i c e e x p o r t s . A f o r t h c o m i n g Bank Working P a p e r by T r L L ; t ~ e r t r i n d ,T h a i l a n d ~ ~ r i c u l t u r Parl i c e s and S u b s i d i e s , A Case S t u d y , p r e s e n t s a d e t a i l e d a n a l y s i s of t h e e f f e c t s of s u c h t a x a t i o n on a g r i c u l t u r a l incomes and allocation. It a l s o i n c l u d e s a b i b l i o g r a p h y of m a t e r i a l s c o v e r i n g t h e same t o p i c . Consequently, t h e r e is no need t o r e c a p i t u l a t e s u c h a n a l y s i s h e r e . 3.15 A s s t a t e d e a r l i e r , t a x e s on e x p o r t s r e d u c e t h e r e t u r n s t o e x p o r t p r o d u c t i o n s i n c e T h a i l a n d is overwhelmingly a p r i c e - t a k e r w i t h r e s p e c t t o its exports. I n T h a i l a n d t h i s a l s o means d e p r e s s e d r e t u r n s t o a g r i c u l t u r e . - /l S i m i l a r l y , t a x e s on i m p o r t s r e d u c e t h e demand f o r i m p o r t s and t h e f o r e i g n exchange which f i n a n c e s them. S i n c e e x p o r t s buy f o r e i g n exchange, import taxation f u r t h e r depresses returns t o exports, i . e . depresses t h e a g r i c u l t u r a l s e c t o r . A s n o t e d i n T a b l e 1 3 a major s o u r c e of t a x r e v e n u e s i s f o r e i g n t r a d e . I n b r i e f we have a s i t u a t i o n i n which t h e t e r m s of t r a d e a r e d e p r e s s e d a g a i n s t a g r i c u l t u r e , which means l e s s r a p i d growth of e x p o r t s and a g r i c u l t u r e and i n c r e a s e d m i g r a t i o n t o Bangkok. A l l t h r e e of t h e s e outcomes a r e c o n t r a r y t o public policy. 3.16 I f t a x a t i o n of f o r e i g n t r a d e h a s s u b s t a n t i a l u n d e s i r a b l e e f f e c t s , t h e n e x t q u e s t i o n i s s h o u l d i t be reduced o r e l i m i n a t e d . I n some c o u n t r i e s , improvement of a g r i c u l t u r a l terms of t r a d e - which would r e s u l t from r e d u c t i o n of t r a d e t a x a t i o n - and t h u s t h e i n c r e a s e d o p p o r t u n i t i e s f o r p r o f i t i n a g r i c u l t u r e h a s brought w i t h i t a s p u r t i n m e c h a n i z a t i o n , p a r t i c u l a r l y i n c r e a s e d u s e of t r a c t o r s and a concomitant e v i c t i o n of many a g r i c u l t u r a l l a b o r e r s from t h e l a n d . Such a n outcome c o u l d o c c u r o n l y t o a n e x t r e m e l y l i m i t e d d e g r e e i n T h a i l a n d , however, l a r g e l y because of t h e dominance of owner-operators. 3.17 A second c o n s i d e r a t i o n i s t h e need f o r p u b l i c revenue t o i n c r e a s e more r a p i d l y t h a n n a t i o n a l income. From t h i s p e r s p e c t i v e , e l i m i n a t i n g t r a d e t a x e s would e x a c e r b a t e t h e a l r e a d y s e r i o u s s h o r t a g e of f i s c a l r e s o u r c e s . S u b s t i t u t i o n of income t a x a t i o n w i t h i t s v e r y s e r i o u s problems i n a c h i e v i n g h o r i z o n t a l e q u i t y , g i v e n t h e widespread h a b i t s of e v a s i o n , does n o t a p p e a r a p r o m i s i n g a l t e r n a t i v e i n t h e n e a r f u t u r e , a l t h o u g h presumably some a c t i o n can be t a k e n t o c u r b e v a s i o n . Property Taxation 3.18 A complementary a l t e r n a t i v e a p p e a r s t o be i n c r e a s i n g p r o p e r t y t a x e s . The C e n t r a l Government was on t h e v e r g e of i n t r o d u c i n g a r e v i s i o n of t h e p r o p e r t y t a x i n 1975, but because of a number of problems, t h i s d e c i s i o n was d e f e r r e d t o p e r m i t a d e t a i l e d s t u d y of t h e i s s u e s i n v o l v e d . An e x p a t r i a t e a d v i s o r was h i r e d t o p l a n t h e implementation of t h e new t a x and f o l l o w i n g h i s r e p o r t i n 1978, t h e Government s h o u l d be ready t o t a k e some a c t i o n . 3.19 I n 1977, T h a i l a n d had t h r e e l o c a l p r o p e r t y t a x e s . The most produc- t i v e of t h e s e was t h e motor v e h i c l e r e g i s t r a t i o n t a x , w i t h revenues r e c e n t l y r u n n i n g about B 800 m i l l i o n a n n u a l l y . The t a x i s a d m i n i s t e r e d by t h e l o c a l o f f i c e of t h e C e n t r a l P o l i c e Department of t h e t h r e e t y p e s of l o c a l a d m i n i s t r a - /1 I n 1975, r i c e , r u b b e r , maize, t a p i o c a p r o d u c t s , k e n a f / j u t e , s u g a r and t o b a c c o l e a v e s , accounted f o r 60% o f t h e v a l u e of merchandise e x p o r t s . t i o n s - changwats, s a n i t a r y d i s t r i c t s and m u n i c i p a l i t i e s . In addition, t h e r e were t h e House and Rent Tax (HRT) and t h e Local Development Tax (LDT). The HRT was i n t r o d u c e d i n 1932 t o r e p l a c e t h e t a x e s f o r m e r l y l e v i e d on shop s t a l l s i n m a r k e t s , b u i l d i n g s , b o a t s and r a f t s . I n i t i a l l y l e v i e d i n Bangkok, i t was extended t o a l l m u n i c i p a l i t i e s i n 1944 and t o t h e s a n i t a r y d i s t r i c t s i n 1956. B u i l d i n g s used f o r commercial and manufacturing purposes a r e s u b j e c t t o the tax. S p e c i f i c a l l y exempted a r e owner-occupied housing w h i l e b u i l d i n g s t h a t c o n t a i n machinery and t o o l s f o r manufacturing o r p r o c e s s i n g purposes a r e s u b j e c t t o one t h i r d t h e normal t a x r a t e . C u r r e n t l y , t h e normal r a t e i s 12.5% of t h e annual r e n t a l . Although t h e l a r g e s t of a l l t a x e s l e v i e d by munici- p a l i t i e s and t h e s a n i t a r y d i s t r i c t s , i t i s n o t v e r y p r o d u c t i v e . I n 1972, r e v e n u e s amounted t o B 182 m i l l i o n ,- / l c o n s i d e r a b l y less t h a n 1% of t o t a l taxes collected i n t h a t year. 3.20 An obvious r e a s o n f o r t h i s outcome i s the exemption of owner-occupied housing a s w e l l a s two t h i r d s of t h e r e n t of b u i l d i n g s used f o r manufacturing o r o t h e r p r o c e s s i n g . Perhaps o f g r e a t e r importance i s t h e widespread a v o i - dance of t h e t a x , d i s c u s s e d below. 3.21 N e v e r t h e l e s s , t h e f a c t t h a t t h e t a x f a l l s on r e n t , which i s a measure of t h e income on a b u i l d i n g , g i v e s it c e r t a i n advantages o v e r t h e more common form of t a x on t h e v a l u e of p r o p e r t y . I n t h e long term, i t may be p o s s i b l e t o i n t e g r a t e t h e t a x i n t o t h e system of income t a x a t i o n , p e r h a p s i n i t i a l l y u s i n g a s t a n d a r d d e d u c t i o n of a c e r t a i n p e r c e n t of t h e r e n t a s presumptive c o s t s , and l a t e r , a s a c c o u n t i n g improves, u s i n g t h e a c t u a l n e t r e t u r n on t h e b u i l d i n g s i n q u e s t i o n . 3.22 F i n a l l y , i t i s u n c l e a r why b u i l d i n g s r e n t e d f o r m a n u f a c t u r i n g and s i m i l a r purposes should be exempted by two t h i r d s . 1 2 The a c t u a l impact of such exemption on t h e development of manufacturing<ust be minimal. Even i f t h e b e n e f i t s from such p a r t i a l exemption a r e passed on t o t h e m a n u f a c t u r e r s , a n d / o r h i s employees a n d / o r consumers, t h e r e i s no r e a s o n why t h e s e groups should e n j o y such a " t a x subsidy." The p a r t i a l exemption should p r o b a b l y be eliminated. Land Development Tax 3.23 O f t h e t h r e e p r o p e r t y t a x e s , t h e one w i t h t h e g r e a t e s t immediate p o t e n t i a l i s t h e r u r a l land t a x . The a d j e c t i v e immediate i s used h e r e b e c a u s e , a s d i s c u s s e d below, u n l i k e most d e v e l o p i n g c o u n t r i e s , Thailand h a s a rudimentary b u t r e a s o n a b l y up-to-date c a d a s t r e . 3.24 The t a x a l s o h a s t h e l e g i t i m a c y of h i s t o r y behind i t . O r i g i n a l l y , i t took t h e form of c o n t r i b u t i o n s i n k i n d ( n o r m a l l y r i c e ) t o t h e King by l a n d t e n a n t s . I t s c u r r e n t form stems from t h e Land Development Act of 1965. Respon- s i b i l i t y f o r a s s e s s i n g and c o l l e c t i n g t h e t a x i s a s s i g n e d t o t h e t h r e e j u r i s - d i c t i o n s r e c e i v i n g i t s r e v e n u e s , t h e m u n i c i p a l i t i e s , s a n i t a r y d i s t r i c t s and changwat a d m i n s t r a t i v e o r g a n i z a t i o n s . The Land Department of t h e M i n i s t r y of t h e I n t e r i o r a l s o s u p e r v i s e s i t s a d m i n i s t r a t i o n . According t o s t a t u t e , - /3 /1 A Study of P u b l i c Finances i n T h a i l a n d , 1974, Annex E. p. 45. - /2 Where t h e m a n u f a c t u r e r owns t h e b u i l d i n g , t h e income t a x may i n e f f e c t a l s o be l e v i e d on t h e i m p l i c i t n e t income g e n e r a t e d by t h e b u i l d i n g . Revenue Code of T h a i l a n d ( T h o n b u r i , February 1961). p. 60. revenue r e c e i p t s from t h e t a x must be s p e n t on development a c t i v i t i e s b e n e f i c i a l t o t h e i n h a b i t a n t s of t h e taxed j u r i s d i c t i o n , such a s c o n s t r u c t i o n of s c h o o l s , c l i n i c s , r o a d s , i r r i g a t i o n works o r p u b l i c w e l l s . 3.25 Annually i n March, landowners a r e p r e s e n t e d w i t h t a x b i l l s based upon a s s e s s e d v a l u e s . These v a l u e s a r e r e a s s e s s e d every f o u r y e a r s by a s p e c i a l committee appointed by t h e governor of each province, o r l o r d mayor i n t h e c a s e of m u n i c i p a l i t i e s . / l The appointed committee a s s e s s e s v a l u e of l a n d from r e c e n t s a l e s . As a benchmark, a n average v a l u e of land i s determined f o r t h e a r e a from n o t l e s s t h a n t h r e e s a l e s which have been t r a n s a c t e d w i t h i n t h e l a s t y e a r . S i n c e t h i s i s s t r i c t l y a land t a x , v a l u e s of s t r u c t u r e and items of c u l t i v a t i o n a r e excluded. 3.26 The LDT h a s 43 r a t e s each corresponding t o a l a n d v a l u e b r a c k e t . A s shown i n Table 15, t h e t a x r a t e i n i t i a l l y r i s e s w i t h v a l u e of l a n d . However beyond v a l u e s exceeding B 10,000 p e r r a i (US$200 p e r a c r e ) , t h e r a t e s t r u c t u r e becomes r e g r e s s i v e . P r e f e r e n t i a l t r e a t m e n t under t h e 1965 Act i s extended t o a v e r y l a r g e p a r t of t h e v a r i o u s land p a r c e l s . The amount exempted from t h e t a x i s a s follows: (a) f o r land o u t s i d e m u n i c i p a l i t i e s o r s a n i t a r y d i s t r i c t s , 5 r a i per family ; (b) f o r land w i t h i n o t h e r types of a d m i n i s t r a t i o n , between 0 . 2 5 and 1 r a i per family; (c) land c u l t i v a t e d i n annual crops by t h e owner i s l i m i t e d t o a t a x r a t e of B 5 p e r r a i ; r e n t e d farmland i s s u b j e c t t o one h a l f t h e statutory rate. 3.27 Notwithstanding t h i s e l a b o r a t e machinery, r e c e i p t s from t h e land t a x a r e m i n i s c u l e ; e.g., B 213 m i l l i o n i n 1972. N e v e r t h e l e s s , t h e y a r e an important s o u r c e of l o c a l government revenue, p a r t i c u l a r l y f o r t h e changwat a d m i n i s t r a t i v e o r g a n i z a t i o n s . I n 1972 t h e y accounted f o r 37% of t h e l a t t e r ' s revenue . /1 - For t h e p r o v i n c e s , t h e committee c o n s i s t s of t h e deputy p r o v i n c i a l governor, a land o f f i c e r (Land Department of t h e M i n i s t r y of I n t e r i o r ) , t h e head of a l o c a l d i s t r i c t , a l o c a l commune c h i e f , and two q u a l i f i e d persons appointed by t h e p r o v i n c i a l governor. A municipal a r e a h a s t h e same com- m i t t e e s t r u c t u r e w i t h two noted exceptions: a municipal c o u n c i l o r s e l e c t e d by t h e governor, and two q u a l i f i e d persons appointed by t h e municipal coun- c i l a r e s u b s t i t u t e s f o r t h e last t h r e e members of t h e p r o v i n c i a l committee.  T a b l e 15: SCHEDULE OF SELECTED RATES FOR LAND DEVELOPMENT TAX Land v a l u e p e r r a i Percentage t a x r a t e ( B) 0 t o 200 400 800 1,000 t o 10,000 20,000 30,000 50,000 100,000 200,000 300,000 and over Source: M i n i s t r y of I n t e r i o r , Department of Local Administration. 3.28 A good i d e a of t h e l a n d t a x ' s extremely low c u r r e n t burden and s u b s t a n t i a l p o t e n t i a l i s provided by s e v e r a l simple c a l c u l a t i o n s . In 1972, v a l u e added f o r c r o p s and l i v e s t o c k was B 41.9 b i l l i o n . / l N o doubt a t l e a s t a f i f t h of t h i s was a r e t u r n t o t h e l a n d used i n t h i s v a l u e added. Thus, t h e r e t u r n t o a g r i c u l t u r a l l a n d was a t l e a s t B 8.38 b i l l i o n . The changwat a d m i n i s t r a t i v e o r g a n i z a t i o n s and t h e s a n i t a r y d i s t r i c t s had r e c e i p t s from t h e Land Development Tax i n t h e same y e a r of B 0.19 b i l l i o n . / 2 Since l i t t l e c u l t i v a t e d l a n d i s l o c a t e d w i t h i n t h e m u n i c i p a l i t i e s , & a l G s t a l l of t h e t a x f e l l on a g r i c u l t u r a l l a n d whose r e t u r n was a t l e a s t B 8.38 b i l l i o n . Hence, t h e t a x burden was very low, l e s s t h a n 2.3% of t h e n e t r e t u r n t o t h e l a n d . A f o u r o r f i v e f o l d i n c r e a s e would s t i l l mean a f a i r l y low burden, l e s s t h a n 10% of t h e n e t r e t u r n t o land. 3.29 I n addition t o i t s l a r g e p o t e n t i a l y i e l d , i t i s c l e a r t h a t t h e land t a x would be a b e t t e r way t o t a x a g r i c u l t u r e than r e l i a n c e on t r a d e t a x e s , p a r t i c u l a r l y export d u t i e s . The l a t t e r encourage t h o s e taxed t o t u r n t h e i r e n e r g i e s elsewhere i n an e f f o r t , t o avoid t h e t a x . A t a x on t h e f i x e d f a c t o r , l a n d , i n c o n t r a s t , cannot reduce i t s i n t r i n s i c supply and b r i n g s w i t h i t i n c e n t i v e s t o u s e t h e l a n d more p r o d u c t i v e l y , i n c l u d i n g s e l l i n g i t t o t h e most e f f e c t i v e c u l t i v a t o r , a s w e l l a s f o r c i n g i d l e o r poorly c u l t i v a t e d l a n d back i n t o production t o e l i m i n a t e t h e n e g a t i v e r e t u r n due t o t a x a t i o n . - /1 World Bank, Economic Memorandun on t h e Current Economic S i t u a t i o n and P r o s p e c t s of Thailand, Report N o . 1280a-TH, October 29, 1976, Appendix Table 2-1. 12 A Study of P u b l i c Finances i n Thailand, 1974, Annex E , p. 46. - /3 In 1971, 10.8% of t h e Land Development Tax was c o l l e c t e d by t h e - m u n i c i p a l i t i e s , i b i d . p. 45. 3.30 The l o c a l governments a r e s h o r t of funds. Although t h e i r responsi- b i l i t i e s f o r s e r v i c e s o f t e n o v e r l a p w i t h t h o s e of t h e C e n t r a l Government, t h e r e a r e many f o r which t h e y a r e l a r g e l y o r s o l e l y r e s p o n s i b l e . These i n c l u d e d r a i n a g e , o p e r a t i o n of t h e systems - - i f any f o r supplying w a t e r , r e f u s e - d i s p o s a l , p o t e n t i a l l y sewerage d i s p o s a l , / l primary e d u c a t i o n ( w i t h t h e M i n i s t r y of t h e I n t e r i o r ) , p u b l i c h e a l t h a c z v i t y and r u r a l c l i n i c s ( w i t h t h e M i n i s t r y of P u b l i c H e a l t h ) , markets, p a r k s , f i r e p r o t e c t i o n , and c e r t a i n p o l i c e f u n c t i o n s such a s e n f o r c i n g t h e b u i l d i n g code and t h e land-use p l a n ( a s prepared by t h e M i n i s t r y of t h e I n t e r i o r ) . Transfers t o local a u t h o r i t i e s from t h e C e n t r a l Government i n r e c e n t y e a r s have been c o n s i d e r a b l e , B 3.1, 4.7, and 1.4 b i l l i o n i n FY75, 76 and 7 7 r e s p e c t i v e l y . In these y e a r s , t h e t r a n s f e r s c l e a r l y exceeded t h e l o c a l revenues. These c o n s i d e r a t i o n s s u g g e s t t h a t t h e need f o r more l o c a l l y g e n e r a t e d revenues i s v e r y s t r o n g . I n t u r n , t h i s s u g g e s t s the d e s i r a b i l i t y of l o c a l l y a d m i n i s t e r e d and g r e a t l y i n c r e a s e d land t a x a t i o n (and f o r t h e f o r e s e e a b l e f u t u r e , improved adminis- t r a t i o n of t h e HRT). This c o n c l u s i o n i s r e i n f o r c e d by t h e widespread convic- t i o n t h a t d e c e n t r a l i z a t i o n and i n c r e a s e d l o c a l autonomy a r e h i g h l y d e s i r a b l e . One way t o develop r e s p o n s i b l e l o c a l a d m i n i s t r a t i o n s i s t o i n c r e a s e t h e i r t a x authority. 3.31 I n t h e p a s t , t h e r e has been c o n s i d e r a b l e a g i t a t i o n f o r a r e v i s i o n of b o t h t h e H R T and t h e LDT and t h e i r i n t e g r a t i o n i n t o a s i n g l e c e n t r a l l y administered property tax. ( I n 1975, about a thousand new employees of t h e Revenue Department i n t h e M i n i s t r y of Finance were h i r e d t o implement t h e proposed new p r o p e r t y t a x which was t o be c o l l e c t e d by t h e C e n t r a l Government. A t t h e l a s t m i n u t e , t h e proposal was abandoned, but t h e new c i v i l s e r v a n t s s t a y e d , no doubt playing a major r o l e i n the s u b s t a n t i a l improvements i n tax administration since t h a t time). Nevertheless, c e n t r a l c o l l e c t i o n c l e a r l y has i t s drawbacks. Rather than b u i l d i n g on t h e e x i s t i n g l o c a l c a d a s t r a l machinery, a p a r t i a l l y new and expensive c e n t r a l a d m i n i s t r a t i o n would need t o be phased i n . Taxpayer compliance would p o s s i b l y be reduced, s i n c e t h e r e would be a t b e s t but a v e r y tenuous r e l a t i o n between t a x e s p a i d , and d e s i r e d l o c a l e x p e n d i t u r e s . For t h e s e and t h e o t h e r reasons implied above, i t appears t h a t l o c a l a d m i n i s t r a t i o n would be p r e f e r a b l e . 3.32 An a d d i t i o n a l problem i s posed by t h e g r e a t r e g i o n a l d i s p a r i t y i n incomes which as shown i n Table 12 v a r y by a f a c t o r of f o u r . This l e a d s t o t h e q u e s t i o n of whether b e t t e r - o f f r e g i o n s should c o l l e c t a s u r p l u s which would be used t o s u b s i d i z e t h e poor r e g i o n s . A l t e r n a t i v e l y , i t might make sense t o develop L D T s u r c h a r g e s analogous t o t h e c u r r e n t system of shared t a x e s . A t p r e s e n t , l o c a l governments r e c e i v e the 10% surcharge on t h e b u s i n e s s t a x , t h e t a x on a l c o h o l i c beverages, and on e n t e r t a i n m e n t and o t h e r taxes collected within t h e i r jurisdictions. There i s no reason why t h i s p r i n c i p l e could n o t be used i n a r e v e r s e d i r e c t i o n according t o a p r o g r e s s i v e r a t e schedule. As long a s t h e average v a l u e of land p e r r a i i n a province was below a c e r t a i n minimum, no s u r c h a r g e would be made. Beyond t h e minimum and up t o a c e r t a i n v a l u e , a surcharge of say 2 0 % , and perhaps even a second of an a d d i t i o n a l 20% would be c o l l e c t e d . A l t e r n a t i v e l y one could d e v i s e a system of "revenue sharing" i n which t h e C e n t r a l Government received a minimum of 5% of c o l l e c t i o n s r i s i n g t o s a y h a l f the t o t a l i n the w e a l t h i e s t / 1 C u r r e n t l y , t h e r e a r e no municipal sewerage treatment works i n Thailand. - changwats. One r e s u l t of such a system would be a s t a k e i n good adminis- t r a t i o n by t h e C e n t r a l Government which c o u l d make v a r i o u s t y p e s of a s s i s t a n c e a v a i l a b l e t o t h e l o c a l a u t h o r i t i e s t o a i d them i n improving t h e i r adminis- t r a t i o n of t h e new l a n d t a x . S i m u l t a n e o u s l y and s e p a r a t e l y from t h e s e c o n s i d e r a t i o n s , t h e C e n t r a l Government c o u l d c o n t i n u e i t s system of s u b s i d i e s t o l o c a l a d m i n i s t r a t i o n s ; i t being understood that t h e s e f u n d s o r i g i n a t e i n g e n e r a l revenues t o avoid t h e c h a r g e t h a t t h e C e n t r a l Government t a k e t a x e s o f one l o c a l a d m i n i s t r a t i o n t o s u b s i d i z e o t h e r s . The B u s i n e s s Tax 3.33 A s noted e a r l i e r , t h e b u s i n e s s t a x was n e a r l y t h e l a r g e s t t a x i n 1976-77 a c c o u n t i n g f o r s l i g h t l y less t h a n r e c e i p t s from import d u t i e s . Should p a s t t r e n d s p e r s i s t , i t w i l l soon become t h e l e a d i n g t a x , because of t h e s e c u l a r l y d e c r e a s i n g s h a r e of import t a x e s w h i l e i t s own s h a r e c o n t i n u e s t o grow. (The t a x h a s i n c r e a s e d from 19.0% of c e n t r a l government t a x e s i n 1963-64 t h r o u g h 21.9% i n 1970-71 t o 23.3% i n 1976-77). However, i t has s e v e r a l s e r i o u s d i s a d v a n t a g e s whose e f f e c t s c a n a l s o be expected t o i n c r e a s e d r a m a t i c a l l y . A n a l y s i s of t h e s e shortcomings and s u g g e s t i o n s f o r t h e i r e l i m i n a t i o n follow. 3.34 The b u s i n e s s t a x f a l l s on g r o s s r e c e i p t s of c e r t a i n t r a d e r s i n l o c a l goods, on i m p o r t e r s , m a n u f a c t u r e r s , c o n t r a c t o r s , t r a n s p o r t e r s , on f i n a n c e , i n s u r a n c e , warehousing, h o t e l s , r e s t a u r a n t s , r e n t of p r o p e r t y and s o f o r t h . - /l 3.35 The f o l l o w i n g e s t i m a t i o n g i v e s a good measure of t h e dimensions of t h e b u s i n e s s t a x . F i r s t , w e exclude t h o s e e x p e n d i t u r e s which a r e not t a x e d , p r i m a r i l y r e t a i l t r a d e , a g r i c u l t u r a l o u t p u t , and p u b l i c s e c t o r e x p e n d i t u r e . (Even i f t h e l a t t e r i s burdened by t h e b u s i n e s s t a x because of procurement from p r i v a t e f i r m s , such e x p e n d i t u r e cannot be p r o p e r l y c o n s i d e r e d a s p a r t of t h e b u s i n e s s t a x b a s e ) . As shown i n Table 1 6 , t h i s l e a v e s 30% of G DP a s unexempted. To t h i s , we add t h o s e i m p o r t s s u b j e c t t o b u s i n e s s t a x . As a p e r c e n t a g e of v a l u e added i n GDP i n 1975, t h e t o t a l base i s about 48%. Business t a x e s i n 1975 came t o 2.6% of GDP. Thus, t h e a v e r a g e t a x on unexempted v a l u e added p l u s d u t i a b l e imports was some 5.4%. R e l a t i v e t o t h e t o t a l b a s e , t h i s i s n o t a n u n u s u a l outcome. I n many c o u n t r i e s , r e c e i p t s from t u r n o v e r t a x e s have been c o n s i d e r a b l y l a r g e r . - /1 Although t h e b u s i n e s s t a x may f a l l on e x p o r t s , t h e y r e c e i v e r e f u n d s a g a i n s t t h e presumptive t a x .  T@&-16 : CRUDE ESTIMATION OF BUSINESS T AX BASE, AS A PERCENT OF VALUE ADDED I N GDP, 1975 % of v a l u e added 1975 ~ - . ~ - - - ----- ~ ~ - - ~ Value added i n a g r i c u l t u r e (crops, livestock, f i s h e r i e s , f o r e s t r y ) 13.2 P u b l i c s e c t o r v a l u e added /a 15.2 (rough e s t i m a t e ) Value added f o r a l l t r a d e i n food, and o t h e r r e t a i l t r a d e /b 12.0 (rough e s t i m a t e ) I n d i r e c t taxes - 10.9 T o t a l p e r c e n t a g e exempted 69.1 Merchandise imports 22.0 L e s s i m p o r t s , and i n d u s t r i a l raw m a t e r i a l s , exempted by investment i n c e n t i v e l e g i s l a t i o n 5.0 - (very rough e s t i m a t e ) Unexempted i m p o r t ~ s/ c 17.0 Business t a x base ----- a P u b l i c a d m i n i s t r a t i o n , d e f e n s e , e d u c a t i o n , s t a t e e n t e r p r i s e s and s o f o r t h . & Value added i n a l l t r a d e - wholesale and r e t a i l - i n 1975 was 18%. /S Most of t h e s e imports a r e f i n a l goods. To t h e e x t e n t t h a t they a r e i n p u t s i n t o o t h e r production, t h e b u s i n e s s t a x base i s overestimated. Source: N a t i o n a l Economic and S o c i a l Development Board, N a t i o n a l Income of T h a i l a n d , 1976 E d i t i o n , passim. 3.36 N e v e r t h e l e s s , t h e t a x i s m u l t i s t a g e and w i t h t h e deepening i n l o c a l production, which we can e x p e c t a s Thailand develops, problems a s s o c i a t e d w i t h t h e t a x w i l l i n c r e a s e . / L More g e n e r a l l y , we can expect v e r y a r b i t r a r y l e v e l s of t a x a t i o n on an o u t p u t depending on how many s t a g e s of i t s production a r e taxed. Thus, some p r o d u c t i o n w i l l be taxed v e r y h e a v i l y , and o t h e r s v e r y l i g h t l y . I f t h e M i n i s t r y of Finance c o n t i n u e s w i t h i t s piecemeal a t t e m p t s t o make t h e system more e q u i t a b l e , a v e r y complex and no doubt q u i t e a r b i t r a r y s t r u c t u r e w i l l evolve, which w i l l b e a long way from e q u a l t a x a t i o n of e q u a l s . /1 For example a p a i r of l e a t h e r g l o v e s b e g i n s a s ( 1 ) h i d e s , ( 2 ) t r a n s p o r t e d from slaughter-house, t o (3) l e a t h e r - u s e r , ( 4 ) t r a n s p o r t e d t o ( 5 ) g l o v e maker, ( 6 ) s o l d t o w h o l e s a l e r , ( 7 ) s o l d t o r e t a i l e r and f i n a l consumer. Each s t a g e c o n t r i b u t e s v a l u e added. And a t each s t a g e , t h e b u s i n e s s t a x can f a l l on g r o s s r e c e i p t s . The t a x on t h e p a i r of g l o v e s f i n a l l y purchased by t h e consumer can b e v e r y h i g h indeed. 3.37 To avoid t h e t a x , f i r m s w i l l i n t e g r a t e . Thus c o n c e n t r a t i o n of i n d u s t r y - g e n e r a l l y regarded as u n d e s i r a b l e - w i l l be a n o t h e r a c c i d e n t a l outcome. And s m a l l f i r m s , which can handle only a s i n g l e s t a g e of production, w i l l be s e r i o u s l y penalized. 3.38 I n a d d i t i o n t o such u n d e s i r a b l e e f f e c t s on e q u i t y and i n d u s t r i a l o r g a n i z a t i o n , t h e p o l i c y of e l i m i n a t i n g t a x e s on e x p o r t s w i l l become i n c r e a s i n g l y a r b i t r a r y i n i t s e x e c u t i o n , simply because i t w i l l be impossible t o measure s a t i s f a c t o r i l y t h e t a x element, c a r r i e d i n from e a r l y s t a g e s of produc- t i o n , i n an e x p o r t p r i c e . T h i s i s a l r e a d y a problem, and t h e v a r i o u s tax- r e b a t e s on processed manufactures a r e simply rules-of-thumb developed by t h e M i n i s t r y of Finance based on rudimentary d a t a . A s p r o d u c t i o n a t home evolves i n t o numerous s t a g e s , no doubt t h i s approach a l s o w i l l c a l l f o r t h i n c r e a s i n g l y complex, a r b i t r a r y and u n s a t i s f a c t o r y s o l u t i o n s . 3.39 I n t h e long run, t h e s e problems, no doubt a r t i c u l a t e d by complaining businessmen, w i l l probably become overwhelming. However, i n t h i s r e g a r d , Thailand's s i t u a t i o n is n o t unique. A number of c o u n t r i e s have f a c e d similar problems.& The u s u a l s o l u t i o n i s t o r e p l a c e t h e b u s i n e s s t a x w i t h a broad based t a x on v a l u e added. Hence a n e q u a l r a t e v a l u e added t a x (VAT) a t each s t a g e would g e n e r a t e a t o t a l y i e l d e q u a l t o t h a t of a r e t a i l s a l e s t a x wth t h e same r a t e . /I John Due, I n d i r e c t Taxation i n Developing Economies (Baltimore: Johns Hopkins, 1 9 7 0 ) pp. 117 f f . He a l s o d i s c u s s e s a d d i t i o n a l disadvantages of t u r n o v e r t a x e s .  T a b l e 17: BUSINESS TAX CATEGORIES, RATES, AND COLLECTIONS - - - % of t o t a l Tax r a t e receipts Business Category ( % of g r o s s r e c e i p t s ) (1970) D i s t r i b u t i o n and p r o c e s s i n g of goods& 1.5 t o 30.0 R i c e m i l l s and saw m i l l s 2.5 and 4.0 Made t o o r d e r goods 2.0 L e t t i n g of p r o p e r t y 2.5 Warehousing 2.5 N i g h t c l u b s , h o t e l s and r e s t a u r a n t s 7.5 and 10.0 Transport business 0.5 Pawnbrokers 2.5 Commission a g e n t s 5.5 S a l e s of l a n d and b u i l d i n g s 3.5 Banking 2.5 and 10.5 L i f e and g e n e r a l i n s u r a n c e 2.5 and 3.0 Other Total 100.0 /1 For example imported f o o d , b e v e r a g e s , c l o t h i n g , f u r n i t u r e , machine t o o l s , - appliances, b i c y c l e s , s p a r e p a r t s , petroleum products, e t c . Source: The T h a i l a n d Revenue Department. 3.40 One of t h e a d v a n t a g e s of V AT is t h e f e a s i b i l i t y of t a x n e u t r a l i t y . Given a s i n g l e r a t e , a l l o u t p u t w i t h i n t h e t a x b a s e is taxed a t t h a t s i n g l e r a t e . F u r t h e r , u n l i k e t h e b u s i n e s s t a x , t h e o r g a n i z a t i o n of p r o d u c t i o n , and t h e d e g r e e of i n t e g r a t i o n a r e u n a f f e c t e d by t h e t a x . The c a s c a d i n g e f f e c t s of m u l t i p l e t a x a t i o n of t h e same o u t p u t a r e e l i m i n a t e d . T h i s a l s o means t h a t v e r y h i g h r a t e s of t a x on f i n a l o u t p u t a r e no l o n g e r hidden a s w i t h t h e m u l t i s t a g e t a x e s on g r o s s r e c e i p t s . 3.41 Another a t t r a c t i v e f e a t u r e of t h e t a x i s i t s b u i l t - i n s e l f - e n f o r c e - ment. The common way t o c o l l e c t t h e t a x i s t o a p p l y i t t o t o t a l s a l e s , i . e . a s i n T h a i l a n d ' s b u s i n e s s t a x , and t h e n d e d u c t from t h e t o t a l t a x t h e amount p a i d by t h e p r e v i o u s s u p p l i e r . T h i s t a x c r e d i t ( t h e amount d e d u c t e d ) i s , however, c o n t i n g e n t on p r e s e n t a t i o n of a copy of t h e t a x r e c e i p t of t h e previous s u p p l i e r . S i n c e each f i r m w i l l wish t o maximize i t s t a x c r e d i t i t w i l l demand t h a t i t s p u r c h a s e s of i n t e r m e d i a t e goods a r e a s i n d i c a t e d on t h e t a x r e c e i p t . I n b r i e f , t h e b u y e r h a s no i n c e n t i v e t o buy t a x - f r e e from h i s s u p p l i e r . Quite t h e contrary. At the final stage - t h e r e t a i l e r i n developed c o u n t r i e s , b u t o f t e n t h e w h o l e s a l e r i n l e s s developed l a n d s - this self- enforcing f e a t u r e disappears. But t h e r e should be a c l e a r "mark-up" o v e r t h e p e n u l t i m a t e s t a g e . I n a c o u n t r y w i t h s e r i o u s e v a s i o n problems, such s e l f - enforcement should be p a r t i c u l a r l y a t t r a c t i v e . 3.42 In a d d i t i o n , i t i s f e a s i b l e t o i n c l u d e o r exclude from t h e base c e r t a i n c l a s s e s of goods. Thus, t o encourage i n v e s t m e n t , t h e f i n a l p u r c h a s e r of c a p i t a l goods may deduct from h i s t a x l i a b i l i t y t h e t o t a l V AT imposed on t h o s e goods. I n o t h e r words, i n terms of t h e " s e l f - e n f o r c i n g i n v o i c e method" he r e c e i v e s t h e f u l l t a x c r e d i t on t h e c a p i t a l goods a s paid by h i s s u p p l i e r , which he can t h e n u s e t o reduce h i s l i a b i l i t y on h i s c u r r e n t o u t p u t . Because c a p i t a l goods a r e acquired a t i r r e g u l a r l e v e l s , t h i s c o u l d mean low ( o r z e r o ) t a x e s a t t h e i r t i m e of a c q u i s i t i o n . However, t h e c r e d i t can be spread over time by p e r m i t t i n g d e d u c t i o n of t a x e s a s d e p r e c i a t i o n o c c u r s . A s i m i l a r mechanism can o p e r a t e i n t h e c a s e of e x p o r t s . 3.43 A s noted above, one of Thailand's problems i n a t t e m p t i n g t o r e b a t e t h e b u s i n e s s t a x on e x p o r t s i s t h e d i f f i c u l t y i n e s t i m a t i n g i t s amount. I n t h e c a s e of VAT, with t h e t a x c r e d i t approach, t h i s problem d i s a p p e a r s . I t i s a l s o p o s s i b l e t o t a x d i f f e r e n t s t a t e s of p r o d u c t i o n a t d i f f e r i n g r a t e s . A common c r i t i c i s m of a l l t a x e s on r e c e i p t s - V AT included - i s t h e i r regressive- ness. Consumption i s a d e c r e a s i n g s h a r e of i n c r e a s i n g income, and t y p i c a l l y such t a x e s do not t a x investment and s a v i n g s . To d e a l w i t h t h i s , t h e r a t e s t r u c t u r e i s o f t e n p r o g r e s s i v e w i t h t h e l u x u r y c h a r a c t e r of t h e goods, and e s s e n t i a l s such a s b a s i c f o o d s a r e l e f t o u t s i d e t h e t a x completely. (The 1974 Study of T h a i l a n d ' s P u b l i c Finance recommended r e p l a c i n g t h e many d i f - f e r e n t b u s i n e s s t a x r a t e s w i t h t h r e e , a c c o r d i n g t o whether t h e goods were e s s e n t i a l s (TX), b a s i c s ( l o % ) , and l u x u r i e s (40%). This f e a t u r e i s e a s i l y incorporated i n t o V AT w i t h even g r e a t e r refinement t h a n i n t h e c a s e of t h e b u s i n e s s t a x , s i n c e t h e l u x u r y r a t e s need a p p l y e n l y t o t h e l u x u r y s t a g e of product ion. 3.44 Notwithstanding t h e s e advantages, V A T has been l a r g e l y r e s t r i c t e d t o c o u n t r i e s i n Europe and L a t i n America. The t a x i s complex and t h e c o n c e p t s involved a r e g e n e r a l l y f o r e i g n t o a developing c o u n t r y , i n c l u d i n g t h e c o r p s of t a x a d m i n i s t r a t o r s . To work w e l l , i t r e q u i r e s good f i r m r e c o r d s s i n c e t h e c r e d i t s on purchases must be compiled and cumulated i n a d d i t i o n t o d a t a on s a l e s . Such recordkeeping, however, should n o t be an overwhelming t a s k , s i n c e i t r e q u i r e s o n l y t h e most fundamental of accounting d a t a . Another problem i s t h a t t h e number of t a x p a y e r s i s l a r g e . Even i f r e t a i l e r s a r e e l i m i n a t e d , t h e number involved would be t e n s of thousands i n Thailand. 3.45 I n t h e c a s e of T h a i l a n d , t h e e x p e r i e n c e w i t h t h e b u s i n e s s t a x reduces t h e f o r c e of t h e s e d i f f i c u l t i e s . Government's s u b s t a n t i a l dependence on t h e b u s i n e s s t a x i n an economy which i s becoming i n c r e a s i n g l y complex i m p l i e s a whole s e r i e s of problems f o r which V AT i s a good s o l u t i o n . I n a d d i t i o n , Thailand's e x p e r i e n c e w i t h t u r n o v e r t a x a t i o n should f a c i l i t a t e t h e i n t r o d u c t i o n of VAT. Thus, b o t h i n terms of need aqd f a c i l i t y , V A T appears t o be a good c a n d i d a t e f o r c o n s i d e r a t i o n . A s time p a s s e s , t h e f o r c e of t h e s e c o n s i d e r a t i o n s should i n c r e a s e and i n f a c t i n t h e long r u n , V A T appears t o be t h e l o g i c a l r e s u l t of t h e b u s i n e s s t a x . A t p r e s e n t t h e need f o r t h e t a x depends on how much m u l t i p l e s t a g e p r o d u c t i o n i s included i n t h e b u s i n e s s t a x , how q u i c k l y t h i s i s i n c r e a s i n g and t o what d e g r e e i t i s l e a d i n g t o u n d e s i r a b l e consequences. The i s s u e i s o b v i o u s l y complex and t h e next s t e p would be t o seek t e c h n i c a l a s s i s t a n c e from a n a p p r o p r i a t e i n s t i t u t i o n , such a s t h e IMF, t o c a r r y o u t an in-depth s t u d y . Motor F u e l T a z e 3.46 These a r e an a t t r a c t i v e s o u r c e of revenue. T h e i r e a s e of col- l e c t i o n and high revenue p o t e n t i a l s t r o n g l y recommend them t o t a x adminis- t r a t o r s . They a l s o meet o t h e r c r i t e r i a f o r an i d e a l t a x : t h e y i n c r e a s e w i t h HH income because of g r e a t e r motor v e h i c l e t r a v e l of t h e r i c h . 1 1 They t y p i c a l l y grow more r a p i d l y t h a n n a t i o n a l income. The demand e l a s t i c i t y f o r f u e l i s low s i n c e f u e l c o s t a s a p r o p o r t i o n of t o t a l c o s t s of a passenger o r t o n k i l o m e t e r i s low. The meager worldwide e f f e c t s on motor-fuel consumption of t h e jump i n r e t a i l p r i c e s i n October 1973 i l l u s t r a t e s t h e low demand e l a s t i c i t y . Because of t h i s , u n d e s i r a b l e e f f e c t s on p r o d u c t i o n due t o d i s t o r t i o n s i n r e l a t i v e p r i c e s a r e probably l e s s t h a n f o r e q u a l y i e l d s from many o t h e r taxes. 3.47 Notwithstanding t h e s e a t t r a c t i v e p r o p e r t i e s , motor f u e l t a x a t i o n i n Thailand i s low. T a b l e 18 shows t h a t Thailand's t a x r a t e s and r e t a i l p r i c e s f o r t h e two b a s i c motor f u e l s have been f a r below t h o s e of o t h e r o i l - i m p o r t i n g developing c o u n t r i e s . Were Thailand t o i n c r e a s e i t s t a x e s on r e g u l a r g a s o l i n e , t o t h e 47% of r e t a i l p r i c e of t h e 37 developing c o u n t r i e s of T a b l e 18, i t would need t o i n c r e a s e t a x e s on r e g u l a r g a s o l i n e by 80%. The r e t a i l p r i c e would i n c r e a s e from B 4.22 t o B 5.34 p e r l i t e r ( a 27% i n c r e a s e ) . 3.48 N e v e r t h e l e s s , t h e r e i s some r e l u c t a n c e t o i n c r e a s e t a x e s on motor- t r a n s p o r t because of t h e b e l i e f t h a t t h e s e c t o r i s - a t least relative to other sectors - a l r e a d y h i g h l y taxed. T h i s i s an e r r o r . I n terms of t o t a l p u b l i c r e s o u r c e s a l l o c a t e d t o road t r a n s p o r t , t h e s e c t o r i s a c t u a l l y s u b s i - dized. T h i s c o n c l u s i o n i s most apparent i f we t a k e what might b e c a l l e d a p u b l i c u t i l i t y p e r s p e c t i v e . Obviously, r o a d s ( d e f i n e d a s highways and c i t y s t r e e t s ) a r e e s s e n t i a l elements i n producing t o n and passenger k i l o m e t e r s . Thus, a s i n t h e c a s e of t h e p u b l i c u t i l i t y , we need t o impute a r e t u r n t o t h e c a p i t a l t i e d up i n roads s i m i l a r t o t h e r e t u r n on c a p i t a l i n general.& / ' N e v e r t h e l e s s i n T h a i l a n d , t h e y a r e probably n o t a p r o g r e s s i v e t a x although l e s s r e g r e s s i v e than t h e average i n d i r e c t tax. /2 - C o n s i s t e n t w i t h t h i s p e r s p e c t i v e i s t h e consensus t h a t t h e f a i l u r e t o impute an o p p o r t u n i t y c o s t t o government c a p i t a l i s a n a t i o n a l accounting error. (See Kendrick, John W., The Formation and Stocks of T o t a l C a p i t a l , Columbia U n i v e r s i t y P r e s s , 1976, pp. 3 f f ) .  T a b l e 18: MOTOR FUEL PRICES AND TAXES, THAILAND AND NONOIL-PRODUCING DEVELOPING COUNTRIES ( v a l u e s i n baht p e r l i t e r ) Regular gasoline High speed d i e s e l Tax a s Tax a s Retail price % of p r i c e Retail price % of p r i c e Thailand 37 Nonoil-P r o d u c i n g Developing C o u n t r i e s J u l y 1974 5.68 46.9 3.24 20.2 Source: (1 ) M i n i s t r y of F i n a n c e , F i s c a l Research Department. (2 ) S a i t o , K a t r i n e . "An Examination of Changes i n t h e R e t a i l R i c e and T a x a t i o n of Petroleum P r o d u c t s J u l y 1973 - J u l y 1974," World Bank, S t u d i e s i n Domestic Finance No. 9 S e p t . 1975, p. 4 and Annex 2. - /a USS0.77 p e r US g a l l o n a t exchange r a t e B 20.8 = US$1.09. 3.49 The b a s i c approach i s t o e s t i m a t e t h e t o t a l replacement c o s t s of t h e road system. In t h e c a s e of T h a i l a n d , we c a n g e t some n o t i o n of what t h i s would be i n t h e c a s e of highways, e x c l u d i n g t h e v a l u e of highway r i g h t - of-ways. According t o v a r i o u s World Bank r e p o r t s , r e c e n t highway c o n s t r u c t i o n c o s t s i n T h a i l a n d have been r u n n i n g a b o u t B 0.2 t o B 0.8 m i l l i o n p e r k i l o m e t e r f o r two-lane paved r o a d s ( n a t i o n a l ) and from B.04 t o B 0.2 m i l l i o n p e r k i l o m e t e r f o r two-lane p r o v i n c i a l r o a d s ( some paved, some g r a v e l l e d ) . To d e t e r m i n e w i t h i n t h e s e r a n g e s t h e mean replacement c o s t s p e r k i l o m e t e r of such r o a d s would r e q u i r e a t i m r c o n s u m i n g and d e t a i l e d s t u d y . T h e r e f o r e , we have used a s mean c o s t p e r km a number which i s somewhat below t h e mid-range of t h e above c o s t s . Taking t h e p r o d u c t s of t h i s h y p o t h e t i c a l mean and t o t a l l e n g t h of highway i n e x i s t e n c e g i v e s a n e s t i m a t e of replacement c o s t f o r highways a s shown i n Table 19, where t h e t o t a l i s B 68.7 b i l l i o n . Roads . ~ d e t e r i o r a t e and p e r i o d i c a l l y r e q u i r e s u b s t a n t i a l e x p e n d i t u r e s f o r econstrue t i o n . However, s i n c e T h a i l a n d ' s highway network i s new, i t i s u n l i k e l y t h a t d e p r e c i a t i o n of t h e e n t i r e system comes t o even a q u a r t e r of t o t a l replacement c o s t . Hence, we d i m i n i s h t h e t o t a l by a q u a r t e r t o B 51.5 b i l l i o n . 3.50 An o p p o r t u n i t y c o s t f o r c a p i t a l of 10% a n n u a l l y i s no doubt f a r below t h e average f o r T h a i l a n d ' s economy, and 3 % d e p r e c i a t i o n p e r y e a r on a highway i s a l s o probably below t h e a c t u a l r a t e . Consequently, we can assume t h a t t h e a n n u a l c o s t s of c a p i t a l s e r v i c e s from t h e highway system exceed 1 3 % (B 6.695 b i l l i o n ) of t h e c a p i t a l s e r v i c e s from t h e highway. T h i s i s a v e r y s u b s t a n t i a l u n d e r e s t i m a t e of t h e t o t a l replacement c o s t s of roads ( i n c l u d i n g c i t y s t r e e t s ) because s t r e e t s and c o s t s of right-of-way do not e n t e r t h e c a l c u l a t i o n . However, a s shown i n Table 20, we do have an e s t i m a t e of c u r r e n t e x p e n d i t u r e on highways i n FY76 of B 2.1 b i l l i o n . Hence, we know t h a t t h e t o t a l annual c o s t s of t h e system exceeded B 8.7 b i l 1 i o n . b Table 19: HYPOTHETICAL REPLACEMENT COSTS O F ROAD SYSTEM ( v a l u e s i n m i l l i o n s of b a h t ) Total Replacement replacement km % paved cost per km c o s t /a N a t i o n a l highways 12,720 96 P r o v i n c i a l roads 22,250 48 Total - 68,680 /a Excludes c o s t of highway right-of-way. - Source: World Bank, Thailand A p p r a i s a l of a S i x t h Highway ( P r o v i n c i a l Roads) P r o j e c t , January 26, 1978, Report No. 1692a-TH, Table 3. (Source f o r l e n g t h of highways o n l y . ) 3.51 Corresponding t o c o s t s a r e charges. I n t h e c a s e of highways, t a x e s on highway v e h i c l e s and t h e i r f u e l are crude charges f o r highway use. T h i s i s t r u e i n t h e a g g r e g a t e ; i . e . , t o t a l u s e r charges p e r time period equal t h e t o t a l payment by highway u s e r s f o r t h e highway system i n t h e same p e r i o d . Within t h e a g g r e g a t e , t h e r e i s " c r o s s s u b s i d i z a t i o n " and "surcharging" among t h e v a r i o u s consumers of road s e r v i c e s , depending on road and v e h i c l e q u a l i t y , t r a f f i c d e n s i t y and t h e s t r u c t u r e of u s e r charges. 3.52 Table 20 a l s o d e t a i l s t h e a g g r e g a t e charges f o r M75 and 76, w i t h a t o t a l of B 6.7 b i l l i o n i n FY75 and B 7.3 b i l l i o n f o r FY76. - /1 The a n a l y s i s should d e r i v e a shadow exchange r a t e r e f l e c t i n g t h e b a s i c r e s o u r c e c o s t s of a d o l l a r i n baht. I f t h e n e t e f f e c t of removing t r a d e r e s t r i c t i o n s would be some d e v a l u a t i o n of t h e b a h t , then t h e shadow exchange r a t e would i n c r e a s e t h e e s t i m a t e d replacement c o s t s because of t h e i r s u b s t a n t i a l f o r e i g n components.  Table 20: ANNUAL TAXES AND COSTS O F HIGHWAY TRANSPORT m75-76 ( m i l l i o n s of b a h t ) Taxes/fees ( 1 ) Motor f u e l s Customs d u t y o r e x c i s e Business t a x (2) V e h i c l e s , p a r t s , and a c c e s s o r i e s Customs d u t y o r e x c i s e Business t a x (3) Annual r e g i s t r a t i o n f e e s Total Costs (4) Imputed r e t u r n and d e p r e c i a t i o n of c a p i t a l tied-up i n highways (5) Current e x p e n d i t u r e on highways Total Note: Most motor f u e l s a r e produced i n l o c a l r e f i n e r i e s from c r u d e imported duty f r e e . These a r e burdened w i t h e x c i s e and b u s i n e s s t a x e s . A s m a l l amount of h i g h speed d i e s e l f u e l and g a s o l i n e i s imported. These c a r r y an import d u t y and b u s i n e s s t a x e s . The sum of t h e s e two d u t i e s is assumed e q u a l t o two t h i r d s of t h e t o t a l d u t i e s on imported petroleum products. Sources: 1 2 3 World Bank, op. c i t . , Table 6. (4) Derived from Table 19. (5) Table A-2. 3.53 Comparing t o t a l t a x e s on r o a d s w i t h t h e g r o s s l y underestimated B 8.8 b i l l i o n of t o t a l c o s t s l e a d s t o t h e c o n c l u s i o n t h a t c o s t s exceeded revenues by f a r more t h a n a f i f t h i n N 7 6 . There was n o t h i n g p a r t i c u l a r l y a t y p i c a l about 1976, and t h e s u b s t a n t i a l s u b s i d y t o highway u s e r s h a s been i n e f f e c t f o r t h e p a s t few y e a r s . 3.54 These a r e v e r y c r u d e c a l c u l a t i o n s b u t t h e e r r o r s a r e such t h a t t h e i r e l i m i n a t i o n would o n l y r e i n f o r c e t h e b a s i c c o n c l u s i o n . A more a c c u r a t e e s t i m a t i o n might w e l l l e a d t o t h e c o n c l u s i o n t h a t even doubling t h e t a x r a t e s on motor f u e l s would n o t e l i m i n a t e t h e n e t s u b s i d y on highway t r a n s p o r t , w h i l e , a s we have s e e n , u s i n g m a t e r i a l from T a b l e 18, t h e i n c r e a s e d t a x burden and p r i c e of f u e l would b e s i m i l a r t o many o t h e r d e v e l o p i n g c o u n t r i e s i n similar circumstances./~ 3.55 The p r o p o s a l t o s u b s t a n t i a l l y i n c r e a s e motor f u e l t a x e s a p p e a r s a t odds w i t h t h e p r i n c i p l e t h a t t a x e s on f u e l s (highway u s e r c h a r g e s ) should cover o n l y s h o r t - r u n m a r g i n a l c o s t s . (Sunk c o s t s do n o t a f f e c t immediate resource allocation.) Even i f one wished t o a p p l y t h i s r u l e , i t would l e a d t o s e r i o u s d i f f i c u l t i e s . Bangkok w i t h i t s v e r y h i g h s h o r t - r u n m a r g i n a l c o s t due t o c o n g e s t i o n would need an extremely h i g h I-lser charge, and one completely d i f f e r e n t from t h e r e s t of t h e c o u n t r y where c o n g e s t i o n i s u s u a l l y n o t a problem. Moreover, s h o r t - r u n m a r g i n a l c o s t p r i c i n g means t h a t n e i t h e r highway n o r any o t h e r p u b l i c u t i l i t y whose short-run m a r g i n a l c o s t s a r e less t h a n a v e r a g e c o s t s , can b e s e l f - f i n a n c i n g . To s o l v e t h a t problem means f i n d i n g t a x e s t o cover t h e uncovered c o s t s . T h i s could v e r y e a s i l y l e a d t o a c o n c l u s i o n t h a t motor f u e l t a x e s should f i n a n c e such c o s t s and perhaps o t h e r government e x p e n d i t u r e a s w e l l . T h i s i s because of t h e i r n o t v e r y r e g r e s s i v e n a t u r e , h i g h y i e l d , e a s e of c o l l e c t i o n , and v e r y low e x c e s s burden. They a r e , p a r t i - c u l a r l y i n d e v e l o p i n g c o u n t r i e s , f a r b e t t e r t a x e s t h a n most broad-based i n d i r e c t taxes. Tax A d m i n i s t r a t i o n 3.56 Tax avoidance is recognized a s a s e r i o u s problem and t h e C e n t r a l Government i s a t t e m p t i n g t o reduce i t . The Revenue Department, which a c c o u n t s f o r about two f i f t h s of C e n t r a l Government t a x c o l l e c t i o n , h a s had i t s s t a f f g r e a t l y i n c r e a s e d s i n c e 1975. I n a d d i t i o n , t h e r e h a s been a s e r i o u s e f f o r t t o i n c r e a s e p r o b i t y i n t h e Department n o t o n l y by p u n i s h i n g a g e n t s a c c e p t i n g b r i b e s b u t a l s o by o f f e r i n g p o s i t i v e i n c e n t i v e s . For example, d a t a on c o l l e c t i o n s by changwats a r e now p u b l i s h e d f r e q u e n t l y t o encourage c o m p e t i t i o n i n t h e c o l l e c t i o n e f f o r t . F u r t h e r , h i g h c o l l e c t i o n s a r e rewarded, i n t e r a l i a , by advancement t o more s e n i o r p o s i t i o n s . R e s u l t s of t h e s e e f f o r t s have been encouraging. With i n f l a t i o n of about 7 % i n FY77, r e c e i p t s from income t a x a t i o n i n c r e a s e d 21%, w h i l e b u s i n e s s t a x i n c r e a s e d 24%. (These a r e t h e two major t a x e s of t h e Revenue Department.) 3.57 There have a l s o been p r o c e d u r a l changes. Beginning i n FY78, each t a x p a y e r w i l l be a s s i g n e d a n i d e n t i f i c a t i o n number. I t w i l l t h e n be p o s s i b l e t o compare r e t u r n s from y e a r t o y e a r , and i n some c a s e s between income t a x /_1_ S e v e r a l o t h e r a s p e c t s of t a x a t i o n on highway t r a n s p o r t can o n l y b e a l l u d e d t o here: ( a ) Motor f u e l s and v e h i c l e s a r e imported and t h u s c o m p e t i t i v e w i t h o t h e r import demands. I n 1975, such imports came t o 31% of t o t a l e a r n i n g s from merchandise and s e r v i c e e x p o r t s . Given t h e concern w i t h f u t u r e e x p o r t growth, i t may n o t be wise t o s u b s i d i z e such a n import- i n t e n s i v e i n d u s t r y . ( b ) T r a f f i c p o l l u t i o n , c o n g e s t i o n , d e a t h and i n j u r y i n t h e Bangkok a r e a i n p a r t i c u l a r would b e lower i f t h e c o s t s of v e h i c u l a r t r a n s p o r t were h i g h e r . F a i l u r e t o i n c l u d e t h e s e e x t e r n a l i t i e s i n t h e highway c o s t e s t i m a t e i m p l i e s even g r e a t e r u n d e r e s t i m a t i o n of t h e highway- t r a n s p o r t subsidy. ( c ) The subsidy t o highway t r a n s p o r t l e a d s t o i r r a t i o n a l c h o i c e s between r a i l r o a d and highways, a s w e l l a s t o n e g a t i v e impact on t h e f i n a n c i a l v i a b i l i t y of t h e r a i l r o a d s . and b u s i n e s s t a x . F u r t h e r , a s of FY78 a l l f i r m s must i s s u e r e c e i p t s f o r s a l e s exceeding B 100, and keep a copy of a l l such r e c e i p t s i n o r d e r t o improve a c c o u n t a b i l i t y f o r t h e b u s i n e s s t a x . / l Table 21: RJISULTS OF TAX FILING SURVEY I N 19 DISTRICTS OF BANGKOK I N MID-1977 Establishments , Liable f o r Returns Percentage surveyed f ilinpr filed of compliance Business t a x Withholding returns f i l e d Withholding on p e r s o n a l income t a x 26,103 Source: Revenue Department. - Note: The Revenue Department c a r r i e d o u t t h e Survey i n 19 of 24 Bangkok d i s - t r i c t s (amphurs). It was door-to-door i n s e l e c t e d blocks w i t h i n t h e d i s t r i c t s . The sample was n o t random. Firms a r e l i a b l e - t o withhold and forward t o t h e Revenue Department wages f o r income t a x purposes on a l l employees whose wage .exceeds B 6,000 p e r y e a r . 3.58 I n FT78, t h e t a r g e t i n c r e a s e i n t a x e s f o r t h e Revenue Department i s 23% which s u g g e s t s t h a t t h e Government b e l i e v e s t h a t t h e r e i s s t i l l widespread t a x avoidance. T h i s b e l i e f is n o t based on hard q u a n t i t a t i v e evidence b u t r a t h e r on p e r s o n a l e x p e r i e n c e , rumor, and t h e poor q u a l i t y of accounting which f a c i l i t a t e s e v a s i o n . There i s , however, evidence of t h e degree of noncompliance i n Bangkok. A s i l l u s t r a t e d i n Table 21, o u t of a sample of about 45,000 e s t a b l i s h m e n t s who should have f i l e d business-tax r e t u r n s i n Bangkok i n 1977, 17% did n o t comply. (This does n o t t a k e i n t o account t h e degree of e v a s i o n of t h o s e f i r m s which d i d f i l e r e t u r n s . ) Far more noncompliance occurred i n t h e c a s e of f i r m s withholding f o r t h e p e r s o n a l income t a x : a s a l s o shown i n Table 21, of 18,000 f i r m s i n t h e sample who should have w i t h h e l d income on employee wages, o n l y 48% complied. 3.59 There is a l s o s t r o n g "macro-evidence" of avoidance of t h e p e r s o n a l income t a x . The l a t t e r exempts from t a x a b l e income, p r i v i l e g e d income of v a r i o u s s o r t s (income from government bonds, r i c e farming, income from b e q u e s t s , and s o f o r t h ) a s w e l l a s allowances f o r b o t h spouses (B 5,000 e a c h ) , f o r each c h i l d (B 2,000), f o r an e s t a t e t h a t i s t h e p r o p e r t y of t h e taxpayer ( B 6,000) and f o r each member of a n o r d i n a r y p a r t n e r s h i p (B 5,000j. O f a l l t h e s e exemptions, t h a t of income from r i c e farming r e s u l t e d i n t h e l a r g e s t r e d u c t i o n of t a x a b l e income. Let u s assume t h a t i n a l l c a s e s , household t a x a b l e incomes i n 1972 s t a r t e d a t t h e mean of B 19,797 /2 p e r year 11 - T h i s w i l l a l s o f a c i l i t a t e i n t r o d u c t i o n of a v a l u e added t a x . 12 T o t a l p e r s o n a l income of B 130.8 b i l l i o n d i v i d e d by t o t a l HHs of 6.607 m i l - - lion. (about B 30,000 i n 1977 p r i c e s ) . (Or a l t e r n a t i v e l y , t h a t f n r c,vc+: ' hl ' 1 above t h e mean which f o r one reason o r a n o t h e r should be f u l l y exempted, e.g. extremely l a r g e f a m i l y , t h e r e should have been a household below t h e l i n e f o r which t h e o p p o s i t e i s t r u e . ) 3.60 As shown e a r l i e r i n Table 11, about 23% of a l l HHs had income above t h e mean, t h a t i s a r a t e of income exceeding 1. From d a t a of t h e Socioeconomic Survey of 1971-73 we know t h a t about 65% of urban and 15% of r u r a l HHs had income above t h e mean. The same survey d i s t r i b u t e s H Hs as 5.685 m i l l i o n r u r a l and 0.922 m i l l i o n urban. However, a s i z a b l e s h a r e of t h e r u r a l H H s were r i c e f a r m e r s , and exempt from p e r s o n a l income t a x . Assuming t h a t t h i s i s t h e c a s e f o r 60% of t h e r u r a l above average income group,& income t a x should have been p a i d by 940,000 H H s : According t o t h e Revenue Department,' of t h e 956,000 r e t u r n s f i l e d i n 1972, o n l y 643,000 p a i d any t a x . 0 I f t h e e a r l i e r c a l c u l a t i o n were c o r r e c t , t h i s would imply complete avoidance by 31% of t h o s e who should have paid some t a x . 3.61 The c u t o f f h a s been B 19,797 HH income. Yet i n 1977, t h e law r e q u i r e d withholding for, employees w i t h incomes exceeding B 6,000. Presumably, withholding i s demanded a t a p o i n t where a s i z a b l e number of H Hs have t a x a b l e income. Even c o n s i d e r i n g a p o s s i b l e l a g i n adjustment f o r i n f l a t i o n , i t i s l i k e l y t h a t u s i n g a c u t o f f p o i n t of B 19,797 probably v e r y s e r i o u s l y under- e s t i m a t e s t h e t o t a l number of HHs w i t h p e r s o n a l income t a x l i a b i l i t y , s o t h a t complete avoidance is g r e a t e r t h a n 31%. I n 1972, p e r s o n a l income t a x r e c e i p t s were B 1.56. Consequently, i f t h e p e r s o n a l income t a x burdened s o l e l y , t h e h i g h e s t q u a r t i l e - most of whose incomes were a t o r exceeded t h e o v e r a l l mean - t h e average rate was 1.8%. It can b e argued t h a t i n f l a t i n g t h e survey incomes t o t h e n a t i o n a l accounts a g g r e g a t e s is an e r r o r . However, even i f we reduce t h e t a x base - - t h e income of our h i g h e s t q u a r t i l e by a s much a s a t h i r d w e s t i l l end w i t h an average r a t e of o n l y 2.7%. 3.62 A t t h e same t i m e , as t h i s average r a t e i s s o low, t h e p r o g r e s s i v e schedule i n s u r e s t h a t s a l a r i e d employees i n Government, t h e p u b l i c s e c t o r and l a r g e p r i v a t e f i r m s pay s u b s t a n t i a l income taxes./3 Clearly, the present s i t u a t i o n w i t h r e s p e c t t o t h e p e r s o n a l income t a x i s a long way from e q u a l t a x a t i o n of equals.& /1 I n rice-growing r e g i o n s , a s w e l l a s elsewhere, a l a r g e p r o p o r t i o n of r u r a l d w e l l e r s a r e n o t farmers (merchants, t e a c h e r s , o f f i c i a l s , mechanics, p r o f e s s i o n a l s , t r u c k e r s ) and a s a whole have h i g h e r mean income than t h e farmers. - /2 Data from unpublished m a t e r i a l s of t h e Revenue Department. /3 A t t a x a b l e incomes of - B 1,000, B 50,000 and B 100,000, t h e average income t a x r a t e s a r e 7%, 9 . 4 % , and 12.2% r e s p e c t i v e l y . /4 About 60% of t h e h i g h e s t income q u a r t i l e l i v e s i n r u r a l a r e a s . - Presumably, i t i s among t h i s group t h a t avoidance of t h e p e r s o n a l income t a x is most marked and some e f f o r t should be made t o reduce t h a t avoidance. 3.63 It is p r o b a b l e t h a t s i m i l a r c a l c u l a t i o n s f o r 1977 would have s i m i l a r outcomes: b e c a u s e of t h e combined impact of s u b s t a n t i a l exemptions from t a x a b l e income, and noncompliance, t h e p e r s o n a l income t a x b a s e is e x p l o i t e d t o o n l y a minor d e g r e e and w i t h a v e r y a r b i t r a r y d i v i s i o n of t h e b u r d e n . 0 The i m p l i c a t i o n s of t h i s c o n c l u s i o n f o r i n c r e a s i n g f u t u r e revenues a r e p r o b a b l y o b v i o u s . Some combination of a d m i n i s t r a t i v e improvement and p e r h a p s r e d u c t i o n of exemptions a s emphasized i n t h e 1974 s t u d y i s b a d l y needed. 3.64 It i s worth emphasizing t h e i m p l i c a t i o n s of t h i s outcome f o r e q u a l t a x a t i o n of e q u a l s . S a l a r i e d i n d i v i d u a l s i n l a r g e f i r m s and Government pay f a r more income t a x t h a n i n d i v i d u a l s i n a g r i c u l t u r e and s m a l l f i r m s w i t h s i m i l a r incomes. I n t h i s c o n t e x t t h e emphasis on improved t a x a d m i n i s t r a t i o n i s h i g h l y d e s i r a b l e s i n c e i t s h o u l d r e s u l t i n some d e c r e a s e i n t h e s u b s t a n t i a l v a r i a n c e i n t a x burden a c r o s s H H s w i t h s i m i l a r incomes (and household c o m p o s i t i o n ) . It i s p o s s i b l e t h a t t h e r e is a c o i n c i d e n c e of g o a l s h e r e : namely t h a t of i n c r e a s i n g c o l l e c t i o n s a s w e l l as of e q u i t y . I t might even b e d e s i r a b l e f o r t h e Government t o emphasize t h a t i t s campaign t o r e d u c e e v a s i o n h a s a s a primary g o a l a f a i r e r t a x system w i t h more e q u a l burdens f o r t h o s e w i t h e q u a l incomes. FUTURE REVENUES Projections 4.01 Long-run t a x p r o j e c t i o n s , s a y more t h a n f i v e y e a r s i n t o t h e f u t u r e , a r e hazardous u n d e r t a k i n g s i n T h a i l a n d even w i t h i n t h e most c a r e f u l l y developed and i n g e n i o u s m u l t i p l e r e g r e s s i o n framework. T h i s is b e c a u s e v a r i a b l e s n e c e s s a r i l y excluded from t h e r e g r e s s i o n e q u a t i o n s - w i t h t a x e s a s dependent variables - impact s t r o n g l y and w i t h g r e a t u n c e r t a i n t y on t a x b a s e s and c o l l e c t i o n s . Two s e t s of s u c h v a r i a b l e s a r e a d m i n i s t r a t i o n / p o l i c y performance and changes i n f o r e i g n t r a d e . W e need n o t b e l a b o r t h e importance and unpre- d i c t a b l e n a t u r e of t h e former. As d i s c u s s e d above, t h e e p i s o d e of FY74 c l e a r l y showed a government r e a c t i n g r a p i d l y and making v e r y s u b s t a n t i a l changes i n t a x r a t e s . ( I n 1974 d o m e s t i c r e v e n u e s i n c r e a s e d 502, nominal GDP o n l y 24%.) More r e c e n t l y t h e Revenue Department h a s b e e n a c h i e v i n g e x t r a - o r d i n a r y i n c r e a s e s i n c o l l e c t i o n s t h r o u g h improved a d m i n i s t r a t i o n . I n a d d i t i o n , t h e c i v i l s e r v i c e i n T h a i l a n d i s c o n t i n u a l l y a d j u s t i n g t a x rates, exemptions, d e d u c t i o n s and s o f o r t h . F o r e i g n t r a d e t a x e s a c c o u n t f o r o v e r a t h i r d of d o m e s t i c revenue, t h e a d d i t i o n of d o m e s t i c t a x e s on i m p o r t s p r o b a b l y p u s h e s t h e t o t a l over 40%. Terms and q u a n t i t i e s of t r a d e g r e a t l y a f f e c t t h e s e revenues, but t h e i r longer run e v o l u t i o n i s d i f f i c u l t t o p r e d i c t . /1 Ingram emphasizes t h e e v a s i o n a s p e c t w i t h r e s p e c t t o f a m i l y e n t e r p r i s e s - i n e a r l i e r d e c a d e s : "The y i e l d of income t a x e s i n c r e a s e d some, b u t i n 1949 and 1950 s t i l l mounted t o o n l y 4% o r 5% of t o t a l revenues. Since r a t e s were f a i r l y h i g h , i t is o b v i o u s t h a t t a x e v a s i o n was widespread. I f t h e 1950 income t a x had been c o l l e c t e d i n f u l l , i t p r o b a b l y would have y i e l d e d many t i m e s i t s a c t u a l y i e l d of 112 m i l l i o n b a h t , b u t when t h e t a x b e g i n s t o t a k e 50% of t h e h i g h e r incomes, t h e inducement t o b r i b e t a x o f f i c i a l s becomes enormous." Ingram, James C., Economic Change i n T h a i l a n d 1850-1970 ( S t a n f o r d U n i v e r s i t y P r e s s , S t a n f o r d , 1971), p . 186. Even more d i f f i c u l t t o p r e d i c t i s Government's r e a c t i o n t o f u t u r e changes i n t e r m s of t r a d e . L i k e t h e c o u n t r y i t s e l f , t h e t a x s y s t e m i s r a p i d l y e v o l v i n g and t h e p a s t s e r v e s less a s a b l u e p r i n t f o r t h e f u t u r e t h a n i n many o t h e r a r e a s . The r e s u l t is u n s t a b l e p a r a m e t e r s f o r t h e s e two i n d e p e n d e n t v a r i a b l e s , even i f t h e y were i n c l u d e d i n t h e t a x e q u a t i 0 n s . a 4.02a N e v e r t h e l e s s , one purpose of t h e b a s i c economic m i s s i o n i s t o l o o k t o t h e f u t u r e p a r t i c u l a r l y as c o n c e r n s t h e k i n d of development a c t i v i t y which t h e Government might u n d e r t a k e . T h i s would i n v o l v e c o n s i d e r a t i o n of t h e l i k e l y s i z e and t h e d e s i r a b l e s i z e and s o u r c e s of r e s o u r c e s f o r f i n a n c i n g s u c h government a c t i v i t y . Hence, n o t w i t h s t a n d i n g t h e s t r i c t u r e s above, t h i s s e c t i o n p r o j e c t s t a x e s , d o m e s t i c r e v e n u e s , and c u r r e n t e x p e n d i t u r e s i n i t i a l l y on t h e assumption t h a t t h e p a s t p a t t e r n w i l l p e r s i s t and t h e n assuming t h a t t h e revenue changes s u g g e s t e d i n t h e e a r l i e r s e c t i o n would be implemented. I n t h i s work, t h e assumption i s t h a t t h e i n i t i a l outcomes s u g g e s t what might happen. I n a d d i t i o n , t h e outcomes w i t h t h e proposed changes d e l i n e a t e what i s f e a s i b l e . I n b r i e f , t h e e x e r c i s e i s i l l u s t r a t i v e and d e s i g n e d , i n t e r a l i a , t o show what c a n be done i f t h e Government w i s h e s t o . 4.02b Taxes grow e x p o n e n t i a l l y and t h e amount of a t a x (T) i n t h e y e a r t c a n be e x p r e s s e d i n t e r m s o f t h e t a x i n a b a s e y e a r (To) a s : (1) Tt = T o ( l + i ) t , where i = a n n u a l r a t e of growth of t a x e s . e have a s i m i l a r r e l a t i o n f o r GDP, d e f i n e d a s Y: W (2) Yt = Yo(l + y) t , where y = a n n u a l r a t e of growth o f income. Combining ( 1 ) and ( 2 ) , w e c a n d e f i n e t h e r a t i o of a t a x o r group of t a x e s t o GNP as: Using h i s t o r i c a l d a t a - i n t h i s c a s e f o r t h e p e r i o d 1970-77 we c a n work - back t o e q u a t i o n ( 3 ) . Table A1 p r e s e n t s d a t a f o r T and T a b l e A12 f o r Y . These s t a t i s t i c s p e r m i t c a l c u l a t i o n of i and y. 4.02~ I n t u r n , we d e f i n e t h e .growth of t a x e s r e l a t i v e t o t h e growth of income o v e r a g i v e n p e r i o d of y e a r s t as: - 11 The 1974 Study i n c l u d e d a s e c t i o n p r o j e c t i n g t a x e s based on i n d i v i d u a l t a x r e g r e s s i o n s o v e r t h e decade 1963-1973 and e x p e c t e d growth o f key v a r i a b l e s (GDP, v a l u e added i n a g r i c u l t u r e , f o u r d i f f e r e n t k i n d s of i m p o r t s , and s o on). The t a x - r e g r e s s i o n s had s p l e n d i d r e s u l t s w i t h R~ ( a d j u s t e d ) u s u a l l y e x c e e d i n g 0.97. But t h e p r e d i c t i o n f o r c e n t r a l government t a x e s f o r c a l e n d a r y e a r 1976-77, o n l y t h r e e y e a r s i n t o t h e model's f u t u r e , w a s t o o low by 10%. The model c o u l d n o t f o r e s e e t h e Government's b i g push t o i n c r e a s e t a x r e v e n u e s i n 1976-77. R c a n be decomposed i n t o ( 1 + r ) , where r e q u a l s t h e annual growth r a t e of t a x e s r e l a t i v e t o t h e annual growth r a t e of income. 4.03 Since ( 1 + r ) = ( 1 + i ) / ( l + y ) , i t i s p o s s i b l e and more convenient t o c a l c u l a t e t h e r e l a t i v e growth o f t a x e s by u s i n g Equation ( 5 ) : T h i s i s t h e c a s e because Tt/To e q u a l s ( 1 + i ) t and Y t / Y o e q u a l s ( 1 + y ) t by Equations ( 1 ) and ( 2 ) . Equation ( 5 ) was used t o c a l c u l a t e R f o r t h e seven- y e a r p e r i o d 1970-77. Table 21 d i s p l a y s t h e v a l u e f o r ( 1 + r17 f r each t a x i n i t s second column. The s e v e n t h r o o t of ( 1 + r17 was t h e n t a k e n t o produce t h e r e q u i r e d a n n u a l r e l a t i v e growth. - /l 4.04 I f i = y, r = 0 and R = 1, t h e r a t i o of t a x ( e s ) t o GDP i s c o n s t a n t . For i > y , R exceeds 1 and r > 0. The t a x t o GDP r a t i o i s i n c r e a s i n g . As shown i n Table 21, o v e r t h e seven-year p e r i o d R f o r a l l t a x e s combined was 1.006. Both t a x e s and G DP grew a t n e a r l y t h e same r a t e . Thus, r e s i l i e n c y e q u a l t o 1 (and r = 0 ) i m p l i e s t h e s t a g n a t i n g t a x r a t i o d i s c u s s e d i n t h e f i r s t p a r t . However, t h e i n d i v i d u a l r e s i l i e n c i e s v a r y s u b s t a n t i a l l y . I n t h e p e r i o d 1970-77, t r a d e t a x e s had r e s i l i e n c i e s l e s s t h a n 1 and were d e c l i n - i n g r e l a t i v e t o income. N e v e r t h e l e s s , i n a b s o l u t e v a l u e s , t h e y i n c r e a s e d s u b s t a n t i a l l y ; t a x e s on e x p o r t s grew a t 7.4% a n n u a l l y while nominal GDP grew - /1 It is u s e f u l t o c o n t r a s t t h i s approach w i t h t h a t of t a x buoyancy, t h e common a l t e r n a t i v e . I n terms of t h e above e q u a t i o n s , buoyancy (B) i s simply d e f i n e d a s i / y . It assumes t h a t t h e r a t e of growth of t a x e s i s a simple c o n s t a n t , (B), t i m e s t h e r a t e of growth of income. I n t h e measure of r e l a t i v e growth, t h e r a t e of growth of t a x e s r e l a t i v e t o t h e r a t e of growth of income, i s assumed c o n s t a n t . This c a n be made c l e a r e r i f w e solve t h e equation ( 1 + r ) = ( 1 + i ) / ( l + y ) , a s follows: I f i e q u a l s y , which is t o s a y i f t a x e s grow a s r a p i d l y a s income, t h e n t a x e s do n o t grow r e l a t i v e t o income and r i s 0. I f t a x e s grow less r a p i d l y t h a n income, t h e n r i s n e g a t i v e . I f they grow more r a p i d l y t h a n income t h e n r i s p o s i t i v e . But i n a l l c a s e s r i s e q u a l t o t h e r a t e of growth of t a x e s r e l a t i v e t o t h e r a t e of growth of income. For example, i f y = .lo, and r = .01, t h e n i = . I l l . Taxes a r e growing e x a c t l y 1 p e r c e n t p e r y e a r r e l a t i v e t o t h e growth of income s i n c e 1.111/1.10 = 1.01. I f income is assumed t o grow more r a p i d l y i n t h e f u t u r e t h a n i n t h e p e r i o d used t o e s t i m a t e B and R, t h e n t a x e s w i l l be p r o j e c t e d t o grow more r a p i d l y u s i n g t h e buoyancy approach. I f f u t u r e income i s assumed t o grow less r a p i d l y t h a n i n t h e e s t i m a t i o n p e r i o d , t a x e s w i l l be p r o j e c t e d t o grow more r a p i d l y u s i n g t h e r e l a t i v e growth approach. a t 15.5% a n n u a l l y . / l During t h e p e r i o d , no t a x had a n e g a t i v e growth r a t e . B u s i n e s s and e x c i s ~ t a x e s grew r a p i d l y , t h e l a t t e r a t a n a n n u a l r a t e of o v e r 18%. The t a x which grew most r a p i d l y w a s t h a t on company p r o f i t s , i n c r e a s i n g 26% a n n u a l l y . I n c o n t r a s t , t h e p e r s o n a l income t a x b a r e l y k e p t up w i t h GDP g r o w t h , w h i l e p r o p e r t y t a x e s grew more s l o w l y t h a n GDP. T a b l e 22: PROJECTIONS OF TAXES, OTHER DOMESTIC REVENUES AND CURRENT EXPENDITURE, 1980 AND 1985, BASED ON STRUCTURE OF 1970-77 P e r c e n t a g e of g r o s s d o m e s t i c p r o d u c t T,/T,+ resiliency i n FY77 i n FY80 i n FY85 Revenues Y~/Y, (1 + r ) (actual) (projected) (projected) P e r s o n a l income Company income Business t a x Excise t a x P r o f i t s of f i s c a l monopolies Export d u t i e s Import d u t i e s P r o p e r t y t a x e s /a Other t a x e s - /b A l l taxes Nontax r e v e n u e Domestic r e v e n u e s 1.02 Current expenditure 0.98 (of which t r a n s - fers to local governments) (0.73) Current account s u r p l u s /c GDP ( b i l l i o n s of b a h t ; p r i c e s of 1977) / a R e a l e s t a t e t r a n s f e r t a x and stamp duty. - - /b I n c l u d i n g r o y a l t i e s and t h e e n t e r t a i n m e n t t a x . / c Excludes p u b l i c e n t e r p r i s e s e l f - f i n a n c e of c a p i t a l e x p e n d i t u r e . - 11 - T o t a l revenues from a tax d i m i n i s h o n l y i f ( 1 + r) < 1/(1 + y), i.e. i < 0. 4.05 In Table 22, the resiliencies for 1970-77 are assumed constant through 1985 and are used to project total collections for 1980 and 1985 assuming GDP grows at 7% annually. The aggregate measured resiliencies for all taxes over 1970-77 was L.0060. This implies a tax-ratio rising to 12.89% for FY80 and 13.28% for 1985. In the disaggregated projections, the taxes total to 13.04% in 1980, and 14.41% for 1985. This outcome is due to the fact that taxes with resiliencies exceeding 1 are also the taxes in 1977 which account for more than half of total revenues. 4.06 The assumption that GDP will grow at 7% implies that export duties will not quite maintain themselves at their 1977 level and will fall very gradually (i = -0.0047). All other taxes will grow, import duties at a rate of about 4% annually, although the consequence will be a rapid decline in import duties as a share of GDP. In 1970, they were 3.95% falling to 3.13% in 1977. Continuing this trend, they would be down to 2.32% by 1985. Similarly, the mixed bag of "Other taxes" would continue its relative decline, falling to 0.20% of GDP by 1985. The company income tax, in contrast, would jump to 2.48% of GDP, just over twice its share in 1977 as it grew at over 17% annually. At the same time our projection for the personal income tax has its relative share as virtually constant. 4.07 The projections are reasonable in indicating what could occur over the next seven years should the Government maintain its "tax effort" at about the same level as in the past seven years, i.e., not as high as in the last two years, but certainly higher than in the period 1970-73. The aggregate ratio which might result in 1985 (14.41%) would be higher than in earlier - years, although only slightly above the 1968 and 1974 ratio of 13.1%./1 It is common to divide the determinants of tax yields into two kinds: the automatic and the policy/administrative. Yields are seen as automatic insofar as they are determined by the system's structure: progressive income taxes with large or small exemptions, specific or ad valorem excises and so forth. ~olicy/administrative determinants are seen as consisting of immediate conscious public decisions and their implementa- tion; e.g., the Revenue Department's target for business tax increments, or changes in the various tax rates. Regression analysis lends itself to quantification of structure variables; and major policy or administra- tive change can be dealt with in part ex post with dummy variables. But no such quantification of changes in this latter set of variables is possible for the uncertain future. Hence, to use the conceptual division in projecting yields is extremely difficult. Yield from a given structure is very much a function of administrative competence and zeal. Tax-pay- ments are not automatic. It is highly improbable, for example, that the stagnation of the personal income tax over 1970-77, was due to structure given the progressive rates and the steady growth of household incomes over the septennium. Perhaps Thailand's current tax structure could have yielded as much as 15% of GDP in FY77, through what are, for regres- sion analysis, subtle administrative changes alone. 4.08 Table 22 a l s o i n c l u d e s t h e r e s i l i e n c i e s of C e n t r a l Government c u r r e n t e x p e n d i t u r e s , i n c l u d i n g t r a n s f e r s t o l o c a l government and e n t e r p r i s e s . Should t h a t buoyancy p e r s i s t unchanged t o 1985, t h e c u r r e n t e x p e n d i t u r e r a t i o would f a l l s l i g h t l y t o j u s t o v e r 13%. Because t h e e x p e n d i t u r e r e s i l i e n c y i s v i r t u a l l y 1 , and GDP i s p r o j e c t e d t o grow a t 7% a n n u a l l y , c u r r e n t expendi- t u r e would a l s o grow a t a l m o s t 7% a n n u a l l y . T h i s outcome i s c o m p a t i b l e w i t h t h e s i z e a b l e e x p a n s i o n i n s o c i a l and o t h e r s e r v i c e s , s i n c e wages and o t h e r c o s t s f o r e x i s t i n g s e r v i c e s s h o u l d grow more s l o w l y , e.g. 2% o r 3% a n n u a l l y . I n a d d i t i o n , e x p e n d i t u r e on p o l i c e , d e f e n s e , and a d m i n i s t r a t i o n might a l s o grow a t a f a r s l o w e r r a t e . 4.09 T h i s d i s c u s s i o n h i g h l i g h t s t h e f a c t t h a t r a p i d l y expanding government e x p e n d i t u r e i s g r e a t l y f a c i l i t a t e d by a r a p i d l y expanding economy. Fundamen- t a l l y , t h e b a s i c t a x b a s e i s GDP, which i s why GDP c o r r e l a t e s more s t r o n g l y than other v a r i a b l e s with taxes. A n i m p l i c a t i o n of t h i s f a c t i s t h a t s h o u l d GNP n o t grow a t 7% a n n u a l l y b u t o n l y 2% o r 3%, e x p a n s i o n of t a x e s and expendi- t u r e s a t a r a t e of 7% o r 8% would r e q u i r e f a r g r e a t e r p o l i t i c a l w i l l as t a x p a y e r s r e s i s t e d t h e d e c r e a s e i n t h e i r incomes i m p l i e d by t h e expansion. 4.10 The b a s i c p r o j e c t i o n s i n d i c a t e t h a t by 1985, t h e Government c o u l d b e r u n n i n g a c u r r e n t a c c o u n t s u r p l u s of 2.78% of GDP. T h i s would be i n c r e a s e d were t h e t a x recommendations d i s c u s s e d e a r l i e r c a r r i e d o u t . These a r e reviewed below. 4.11 C u r r e n t p r a c t i c e i s a l r e a d y r e d u c i n g t r a d e t a x e s s o t h a t by 1985, e x p o r t t a x e s a r e p r o j e c t e d t o f a l l t o 0.26% of GDP. S i m i l a r l y , import d u t i e s a r e t o d r o p t o 2.32% from t h e 1977 l e v e l of 3.13%. S i n c e i m p o r t s are e x p e c t e d t o grow a t t h e same r a t e as GNP, w h i l e e x p o r t s expand s l i g h t l y more r a p i d l y , ( 8 % a n n u a l l y ) , t h e R ' s t r a d e t a x e s imply s u b s t a n t i a l and c o n t i n u i n g d e c l i n e i n t h e t a x burden r e l a t i v e t o v a l u e of t r a d e . 4.12 A b a s i c recommendation i n t h e t a x p o l i c y s e c t i o n i s t h a t income t a x r e v e n u e be i n c r e a s e d by r e d u c i n g t a x avoidance. The buoyancy of t h e c o r p o r a t e income t a x , i f i t i s t o be m a i n t a i n e d a t i t s v e r y h i g h l e v e l as t h e p r o j e c t i o n s assume, s u g g e s t s t h a t t h i s recommendation i s a l r e a d y b e i n g implemented; t h i s i s r e i n f o r c e d by o u r i n f o r m a t i o n on t h e Revenue Department's r e c e n t t a x e f f o r t . I f t h e buoyancy p e r s i s t s and e v e r y t h i n g e l s e i s a s p r o j e c t e d , b o t h income t a x e s combined - n o t w i t h s t a n d i n g t h e s t a g n a t i n g p e r s o n a l income t a x - w i l l r i s e from 17% of t o t a l t a x e s i n 1977 t o 24% i n 1985. For b o t h t a x e s combined, a v e r a g e a n n u a l growth would be 9.3%. The i m p l i e d s u s t a i n e d 16% growth r a t e i n r e a l terms f o r t h e company income t a x i s u n l i k e l y . A t t h e same t i m e , t h e Revenue Department's t a r g e t s imply t h a t t h e p e r s o n a l income t a x s h o u l d a l s o grow more r a p i d l y t h a n GDP. Conse- q u e n t l y , t h e l i k e l y s h o r t f a l l i n t h e company t a x s h o u l d be compensated f o r i n t h e individual tax. 4.13 Taxes on motor f u e l accounted f o r 0.99% of G DP i n 1977. The bulk of t h e t a x was i n e x c i s e s a l t h o u g h t h e r e was a l s o some b u s i n e s s t a x and import d u t i e s . I f such t a x e s were doubled, t h e r e t a i l p r i c e of r e g u l a r g a s o l i n e would i n c r e a s e a t h i r d t o B 5.66 p e r l i t e r (US$1.03 p e r g a l l o n ) . Because of t h e v e r y low p r i c e e l a s t i c i t y , t h e short-term e f f e c t on motor f u e l consumption would be minimal. Hence,, t h e t o t a l y i e l d would double t o 2% of GDP. I f we assume t h a t t h e y i e l d on motor f u e l t a x e s has t h e same r e s i l i e n c y a s e x c i s e t a x e s (1.0363), by 1985, t h e n e t i n c r e a s e i n f u e l t a x e s over t h a t g i v e n i n Table 21, would be 1.33%. 4.14 The second major t a x p r o p o s a l was t o i n c r e a s e t h e l o c a l development t a x (LDT) f i v e f o l d from i t s c u r r e n t i n s i g n i f i c a n t l e v e l . I n 1971, y i e l d s from t h e LDT were B 213 m i l l i o n . / l I f y i e l d s from t h i s t a x had grown a s r a p i d l y a s t h o s e from o t h e r t a x e K t h e y would have been B 536 m i l l i o n i n 1977. Assuming t h a t t h i s was t h e c a s e , a f i v e f o l d i n c r e a s e would b r i n g t h e t o t a l t o B 2,680 m i l l i o n . I f t h e r e s i l i e n c y of t h e t a x e q u a l s 1, t h e n by 1985 t h e y i e l d would be B 4,605 m i l l i o n . 1 2 The LDT i s a l o c a l t a x , s o t h a t t h e i n c r e a s e i n revenues could be used t r r e d u c e c e n t r a l government t r a n s f e r s t o l o c a l a u t h o r i t i e s . Since t h e i n c r e a s e would be 0.57% of G DP i n 1985, i t would exceed t h e p r o j e c t e d a g g r e g a t e of 0.53%. Consequently, a l l t r a n s f e r s t o l o c a l government a r e r e p l a c e d by t h e i n c r e a s e d LDT by 1985. 4.15 We can p u t t h i s t o g e t h e r a s f o l l o w s (% of GDP): Domestic revenues ( r e s i l i e n c y of Table 22) 15.82 Current e x p e n d i t u r e s i n c l u d i n g t r a n s f e r s 13.04 Current account s u r p l u s 2.78 Increased motor f u e l t a x e s 1.33 Reduction i n t r a n s f e r s t o l o c a l governments 0.53 Current account s u r p l u s w i t h t h e above changes 4.64 C e n t r a l government t a x r a t i o 15.74 A l l governments t a x r a t i o 15 t o 18 4.16 T h i s would s t i l l be a r e l a t i v e l y low t a x burden, b u t c o n s i d e r a b l y l e s s r e g r e s s i v e than t h e burden of t h e p a s t . It would a l s o permit funding a s u b s t a n t i a l i n c r e a s e i n development a c t i v i t y , i n a d d i t i o n t o t h e v e r y substan- t i a l amounts g e n e r a t e d under Table 22"s status-quo s c e n a r i o . - 11 A Study of P u b l i c Finance i n Thailand, 1974, Annex E , p. 45. 12 - Under t h e assumptions above, with no r a t e i n c r e a s e the LDT would i n c r e a s e t o B 921 m i l l i o n by 1985. Hence, t h e i n c r e a s e i s B (4605 - 921) = B 3,684 m i l l i o n . With GDP p r o j e c t e d a t B 646.2 b i l l i o n i n 1985, t h i s would be 0.57% of GDP.  5. SUMMARY AND RECOMMENDATIONS - Summary 5.01 Thus f a r , f i s c a l a c t i v i t y . i n Thailand a p p e a r s t o r e f l e c t t r a d i t i o n a l l a i s s e z - f a i r e n o t i o n s of t h e l i m i t e d s t a t e . Economic a c t i v i t y i s overwhelmingly p r i v a t e w i t h Government l a r g e l y l i m i t e d t o p r o v i d i n g a c o n g e n i a l framework f o r i t s r e g u l a t i o n and expansion. P u b l i c command of economic r e s o u r c e s i s low, and t h e p r e v a i l i n g economic p o l i c i e s c o n s e r v a t i v e . The p a t t e r n of f i s c a l a c t i v i t y i s c o n s i s t e n t with t h i s conclusion. 5.02 Government e x p e n d i t u r e r e l a t i v e t o GDP i s low, w i t h over two f i f t h s of t h a t e x p e n d i t u r e used f o r s o c i a l overheads such a s d e f e n s e , p o l i c e and d e b t s e r v i c e . What remains p r i m a r i l y promotes economic development i n g e n e r a l , e.g. t h e highways, and p r o v i d e s v e r y l i m i t e d s o c i a l s e r v i c e s which i n t u r n a r e d e l i v e r e d i n d i s p r o p o r t i o n a t e d e g r e e t o urban a r e a s and t h e wealthy. Taxes have a s i m i l a r p a t t e r n . In Table 11, t h e outcome was l a r g e l y t h a t of rough p r o p o r t i o n a l i t y . But i n t h e l o n g e r r u n t h e burden of t r a d e t a x a t i o n i s s e e n a s f a l l i n g most h e a v i l y on t h e poor, s o t h a t t h e t a x system i s probably q u i t e r e g r e s s i v e . Although i t i s c l e a r t h a t t h e r i c h , because of t h e i r extremely h i g h r e l a t i v e incomes ( 6 % of HHs r e c e i v e 39% of ex a n t e income) pay most of t h e t a x e s , t h e y a l s o g e t t h e most back i n t h e form of expenditure benefits. The n e t outcome i n t h e s h o r t term i s l a i s s e z - f a i r e n e u t r a l : a l t h o u g h c e n t r a l government t a x e s were 14% of broad income, t h e n e t r a t e ( g r o s s t a x e s - e x p e n d i t u r e b e n e f i t s ) was v e r y n e a r l y 7% f o r a l l income c l a s s e s but t h e p o o r e s t q u a r t i l e whose r a t e was but 4%. The e f f e c t of t h e government budget on d i s t r i b u t i o n was, i n t h i s p e r s p e c t i v e , minimal. (One would need t o look beyond t h i s one-year n a t i o n a l income c a l c u l u s t o dynamic effects - e.g. t h e new o p p o r t u n i t i e s o f f e r e d t o v a r i o u s groups a s a r e s u l t of government a c t i v i t y - f o r a comprehensive view of what t h e budget does t o distribution). 5.03 Another c o n c l u s i o n i m p l i c i t i n t h e d i s t r i b u t i v e a n a l y s i s of budget a c t i v i t y was t h e l i m i t e d d e g r e e f o r governmental maneuver i n reducing t h e t a x burdens of t h e poor: most government revenues a r e from i n d i r e c t t a x e s , which a l s o a r e t h e major t a x e s paid by t h e poor. To reduce t h e burden of t a x e s on t h e poor r e q u i r e s s u b s t a n t i a l l y reducing government revenues, which i s i m p o s s i b l e over t h e next decade o r even s e v e r a l decades. I n s h o r t , t h e r e i s v e r y l i t t l e scope f o r r e d i s t r i b u t i o n through reducing t h e t a x burden of t h e poor. The s o l u t i o n l i e s i n e x p e n d i t u r e s , s i n c e many e x p e n d i t u r e programs c o u l d g r e a t l y b e n e f i t t h o s e below t h e poverty l i n e . 5.04 R e g r e s s i v i t y i s only one shortcoming i n t h e t a x system, which i s a l s o d e f e c t i v e i n both v e r t i c a l and h o r i z o n t a l e q u i t y . The e q u a l t a x a t i o n o f t h o s e w i t h e q u a l income, i s f a r from a r e a l i t y . Workers i n l a r g e f i r m s and Government p e r s o n n e l pay income t a x e s b u t because of non- and u n d e r - r e p o r t i n g , owners and workers i n s m a l l f i r m s e s c a p e them. I n p a r t t h r e e , t h e examination of evidence on tax-avoidance suggested t h a t i t i s extremely widespread and i s probably r e s p o n s i b l e f o r t h e s t a g n a t i o n of p e r s o n a l income t a x a t i o n i n what h a s been a r a p i d l y expanding economy. Consequently, a d m i n i s t r a t i v e improve- ment a l o n e could l e a d t o v e r y s u b s t a n t i a l i n c r e a s e s i n t h e next decade. 5.05 W e a l s o concluded t h a t t h e t a x s t r u c t u r e was i n e f f i c i e n t . Unlike a l l o t h e r e n t e r p r i s e s i n Thailand, c o r p o r a t i o n s b e a r double income t a x a t i o n , f i r s t on p r o f i t s , t h e n on p e r s o n a l income r e c e i v e d a s d i v i d e n d s beyond t h e l i m i t of t h e dividend exemptions. There i s no j u s t i f i c a t i o n f o r such d i s c r i - mination, p a r t i c u l a r l y s i n c e c o r p o r a t i o n s a r e i n many s i t u a t i o n s t h e optimal form of b u s i n e s s e n t e r p r i s e . A s noted, t h e b u s i n e s s t a x l e a d s t o "cascading" due t o t a x a t i o n of an output a t i n t e r m e d i a t e l e v e l s of production. The number of i n t e r m e d i a t e t a x e s i s a r b i t r a r y w i t h a burden on t h e d i f f e r e n t f i n a l o u t p u t s t h a t i s h i g h l y v a r i a b l e , s o t h a t an i n e f f i c i e n t p a t t e r n of production r e s u l t s . I n s h o r t , d i f f e r e n c e s i n c o s t need n o t r e f l e c t consumer preferences but administrative accident. 5.06 O n examining i n d i v i d u a l t a x e s i t became c l e a r t h a t p r o p e r t y taxa- t i o n , p a r t i c u l a r l y on l a n d , was a s u p e r i o r revenue s o u r c e which was h a r d l y u t i l i z e d , notwithstanding t h e e x i s t e n c e of a f a i r l y up-to-date c a d a s t r e . I n c o n t r a s t , t h e c u r r e n t forms of t a x a t i o n on a g r i c u l t u r e , namely t a x e s on imports and e x p o r t s , were an i n f e r i o r a l t e r n a t i v e . The p o l i c y not o n l y reduces farm income b u t p e n a l i z e s farm o u t p u t and e x p o r t s . I n c o n t r a s t , a l a n d t a x would encourage a g r i c u l t u r a l production. 5.07 F i n a l l y , i n examining t h e i n d i v i d u a l t a x e s , t h e c o n c l u s i o n was t h a t motor f u e l t a x e s were a s u p e r i o r s o u r c e of revenue which should be e x p l o i t e d a s much a s i n o t h e r developing c o u n t r i e s , on b o t h w e l f a r e and e f f i c i e n c y grounds: motor f u e l t a x e s a r e f a r l e s s r e g r e s s i v e t h a n o t h e r broad-based i n d i r e c t t a x e s . A l l o c a t i o n a l e f f e c t s of such t a x e s a r e low because of t h e i r extremely low demand e l a s t i c i t y and c o s t s of c o l l e c t i o n a r e minimal. 5.08 The p r o j e c t i o n s of budget magnitudes t o 1985 were o p t i m i s t i c on t h e t a x s i d e p a r t i c u l a r l y a s concerns d i r e c t t a x e s which a r e expected t o have a r e l a t i v e growth of 1.05. The e x t r a o r d i n a r y t a x e f f o r t of 1976-77 was i m p l i c i t l y assumed t o p e r s i s t . Consequently, n o t w i t h s t a n d i n g t h e c o n t i n u i n g s e c u l a r d e c l i n e i n t a x e s on f o r e i g n t r a d e , c e n t r a l government t a x e s a r e p r o j e c t e d a t 14.41% of G D P by 1985, w e l l over t h e e a r l i e r peak of 13%. I f , i n a d d i t i o n , both t h e p r o p e r t y t a x and motor f u e l t a x e s a r e g r e a t l y i n c r e a s e d , t h e n t h e C e n t r a l Government c u r r e n t account s u r p l u s could i n c r e a s e t o 4.64%, some two and t h r e e q u a r t e r times above t h e mean of 1.7% of G D P f o r t h e p e r i o d 1970-77. 5.09 A c r u c i a l element i n t h e p r o j e c t i o n s i s growth of GDP a t 7% a n n u a l l y , which would p r o v i d e Government w i t h r e s o u r c e s f o r u n d e r t a k i n g a wide range of new a c t i v i t i e s . A low r a t e of G D P growth, i n c o n s t r a s t , would b r i n g s e r i o u s problems i n f i n d i n g r e s o u r c e s t o f i n a n c e r a p i d l y expanding development e x p e n d i t u r e w i t h o u t imposing s e v e r e t a x measures which might b e p o l i t i c a l l y intolerable. Recommendations (a) Thailand should move away from dependence on trade taxation because of its effects on distribution and the efficiency of production. Agricultural exports should be encouraged and taxes eased on agricultural incomes. (b) Motor fuel taxation is low. In fact, on balance, highway services are subsidized. The rates of fuel taxes could be doubled over the next five years. (If it is difficult to do this now because of opposition from interested groups, it may be nearly impossible to do so a decade hence when these groups have become even larger and more articulate). (c) The business tax will become increasingly arbitrary in what it burdens and increasingly difficult to administer. Because it is already almost the highest yielding tax, attention to its future development is needed. The Government should request technical assistance from an organization such as the IMF to develop a value added tax as a superior alternative. (d) A long-term goal should be single and progressive taxation of all HH incomes according to the same system. ,The company income tax with tax-credit against the personal income taxes is seen as contributing to this goal, given the widespread tax avoidance. The emphasis on improved tax administration is also seen as contributing to this goal. The need to tax capital gains is also necessary. The exemption of capital gains from the sale of property "which is not for the purpose of trade or obtaining profit," should be reinter- preted to exclude real-estate sales. Therefore, the Government should develop a long-term plan for subjecting all household income to the progressive individual income tax with a step-by-step implementation schedule. As in the case of the value added tax, technical assistance may be desirable in formulating the plan. If so, it may be desirable to combine the request for both types of assistance. (e) The rural areas need resources. Thailand has a viable cadastre. The rural land tax should be increased four or fivefold where it makes a real contribution to local revenues. It should also be locally admi- nistered. Reverse revenue sharing might be instituted with the Central Government receiving 5% of all collections. The center should provide technical assistance to the local authorities in introducing and administering the new tax (and would have an incentive to do so). (f) Subsidies for higher education for wealthier families should be eliminated and alternative modes of finance, including student loans, should be considered.  Table A-1: CENTRAL COVEMMENT DOHlSTIC BEVENUE ( m i l l i o n s of baht) -PY70 Actual -PY71 Actual -FY72 ktual -PY73 ktual -FY74 Actual -PY75 - Actual P176 - P177 Ip Actual Estimate Total Revenue Tax Revenue Taxes on income Personal Corporate Taxes on consumption Business t a x e s R c i s e taxes Beverages Petroleum products Tobacco and snuff Other Entertainment t a x P r o f i t s of f i s c a l monopolies Tobacco monopoly State lottery Other Taxes on i n t e r n a t i o n a l t r a d e Import d u t i e s Petroleum products Foodstuffs Ilachinery, equipnent and v e h i c l e s of which: Passenger c a r s T e x t i l e s , yarn, thread Other &port t a x e s Rlce premium Rlce d u t y Rubber Other Other t a x e s 1.330 1,330 1,593 1,803 2,962 1.802 2.060 2954 Taxes on p r o p e r t i e s and property t r a n s f e r s 564 557 744 890 582 617 680 Automobile r e g i s t r a t i o n & Transfer t o immovable p r o p e r t f e e Stamp duty Other Royalties Other Non-Tax Revenue 1,7530232,2722.625 4,331 5,040 Contribution of Bank of Thailand 300 450 435 450 1,230 900 Contribution of S t a t e e n t e r p r i s e s & 313 338 387 442 439 839 868 698 Other m n t a x revenue 1,140 1,035 1,450 1,733 1,723 2.002 2.233 3.442 of which: Extraordinary revenue (12) (9) (5) (3) (5) (12) (524) / a C o l l e c t i o n s during t h e f i s c a l years ending September 30. - - /b P r i o r t o FY74 t h e s e taxes were c o l l e c t e d by t h e Central Government, v i t h pmrt of the proceeds earmarked f o r t r a n s f e r t o l o c a l governments. In lT74 these taxes became a Local Government tax. - /c Excludes the negative n e t c o n t r i b u t i o n of public u t i l i t i e s . (Government expenditures on s o c i a l a e r v i c e e have been increased correspondingly.) Preliminary. Source: Bank of Thailand.  Table A-2: CENTRAL U>VEIUMENT EXPENDITURES ( m i l l i o n s of b a h t ) -FY70 Actual -FY71 Actual -72 Actual FY73 Actual FY74 Actual PY75 Actual PY76 Actual p77 Estimate T o t a l Expenditure 24,791 28,449 30,325 32,177 35,658 44,453 54,716 65,530 Current Expenditure 16,620 18,641 20,979 23,735 27,715 32,803 37,732 46,487 Defenae, a d m i n i s t r a t i o n , e t c . 8,836 N),041 10 445 12,512 13,739 16.293 !_8,836 22 317 Defense and p o l i c e 5,530 6,369 6,931 7,340 8,840 10,102 12,349 General a d m i n i s t r a t i o n fi 1,755 2,128 2,090 2,047 2,464 2,955 3.597 3,648 Pensions 571 580 747 764 908 1,143 1,325 1.505 Pllscellaneous 980 984 677 2,361 1,527 2,093 1,565 2,786 Economic e e r v i c e s A g r i c u l t u r e /e of which: I r r i g a t i o n I n d u s t r y and mining Power 9 17 9 13 18 22 31 54 Communications and t r a n s p o r t a t i o n 727 780 798 920 1,052 1,262 1,569 1.727 of which: Highways (609) (667) (684) (817) (905) (1,078) (1,112) (1,422) Other economic s e r v i c e s 146 144 135 147 172 195 258 98 7 Social services Education Health Other s o c i a l s e r v i c e s TA T r u s t Fund (Counterpart Fund Account) 91 - 72 - 67 - 53 - 41 - 28 - 10 - 6 Expenditures financed by non-US external grants - 235 - 287 287 - 305 - 332 372 - 385 - 528 I n t e r e s t payments If I n t e r n a l debt External debt C a p i t a l Expenditures A g r i c u l t u r e /e of which: I r r i g a t i o n I n d u s t r y and mining Power Communications and t r a n s p o r t a t i o n of which: Highways Education Health Water supply and sewerage Miscellaneous of which: Lend r e s e t t l e m e n t Admin. b u i l d i n g s , e t c . Expenditures financed by non-US external grants & -T r a n s f e r s To Local Governments To s t a t e e n t e r p r i s e s Others Adjustments f o r double counting -13 -16 -8 -5 - - - - - /a Thie t a b l e p r e s e n t s t h e accounts of t h e C e n t r a l Goverment i n c l u s i v e of expenditure financed o u t of e x t e r n a l l o a n s and g r a n t s . Expenditures financed out of e x t e r n a l loans and U S g r a n t s a r e included under t h e r e s p e c t i v e headings. The breakdown of expenditures financed o u t of non-U$ g r a n t s is not a v a i l a b l e . Figures a r e f o r disbursements made during Thai f i s c a l y e a r s ending September 30. - /b Includes J u s t i c e . - /c Expenditure on h i r i n g s e r v i c e s of e x p e r t s and t e c h n i c i a n s , f e l l o r e h l p s . f o r e i g n v o l u n t a r y e e r v i c e e and o t h e r c o a t s of c u r r e n t n a t u r e . - Id R p n d i t u r e s on equipment 1.part.d to Thailad. - /e Includes F o r e s t r y . Fishing and Hunting. - /f Figurea do not i n c l u d e p r i n c i p a l repayments of t h e following amounts: P r i n c i p a l Repayment I n t e r n a l Debt 40 516 860 701 1,657 2,384 2,934 1,132 External Debt 266 181 172 180 232 262 282 295 Source: Bssk o f Thailand.  Table A-3: PERCENTAGE DISTRIBLTION O F CENTRAL GOVERNMEW EXPENDITURES /a ( m i l l i o n s of b a h t ) -FY70 -FY71 -FY72 -FY73 -FY74 -FY75 -FY76 - FY77 Actual Actual Actual Actual Actual A c t u a l Actual E s t i m a t e - T o t a l Expenditure - 100.0 - 100.0 - 100.0 - 100.0 - 100.0 - 100.0 - 100.0 - 100.0 Current Expenditure - 67.1 - 65.4 - 69.1 - 73.7 - 77.7 - 73.8 - 69.0 - 70.9 Defense, a d m i n i s t r a t i o n . e t c . - 35.6 - 35.2 22.4 - 34.4 22.8 - 38.8 22.8 - 38.5 24.8 - 36.6 22.7 - 34.4 22.5 21.9 Defenae and p o l i c e 22.3 General a d m i n i s t r a t i o n /b 7.1 7.4 6.9 6.3 6.9 6.6 6.6 5.6 Pension 2.3 2.0 2.5 2.4 2.5 2.6 2.4 2.3 Miscel laneous 3.9 3.4 2.2 7 3 4.3 4.7 2.9 4.3 Economic s e r v i c e s - 7.9 - 7.3 - 6.7 - 7.0 - 7.8 - 7.5 7.5 - 8 .O A g r i c u l t u r e /e 4.0 3.7 3.3 3.4 3.9 3.8 3.7 3.5 of which: I r r i g a t i o n (1.6) (1.4) (1.3) (1.3) (1.5) (1.3) (1.3) (1.2) I n d u s t r y and mining 0.3 0.3 0.3 0.3 0.4 0.4 0.4 0.3 Pover - 0.1 - - - - 0.1 0.1 Communicationsandtransportation 3.0 2.7 2.6 2.9 3.0 2.9 2.9 2.6 of v h i c h : Highvays (2.4) (2.4) (2.3) (2.5) (2.5) (2.4) (2.1) (2.2) Other economic e e r v i c e s 0.6 0.5 0.5 0.4 0.5 0.4 0.4 1.5 Social servicee Education Health 2.6 2.5 2.4 2.6 3.0 2.8 3.0 3.9 Other s o c i a l s e r v i c e s 2.1 2.0 2.1 1.6 1.8 2.3 1.0 1.4 TA T r u s t Fund ( C o u n t e r p a r t Fund Account ) - 0.4 - 0.2 - 0.2 0.2 0.1 - :- E x p e n d i t u r e s f i n a n c e d by non-US e x t e r n a l g r a n t s /c - 0 . 9 1 . 0 0 . 9 1 . 0 0 . 9 0 . 8 - 0.8 I n t e r e s t payments /f I n t e r n a l debt External debt C a p i t a l Expenditures A g r i c u l t u r e /e of v h i c h : I r r i g a t i o n I n d u s t r y and mini;g 0.1 Pover 0.5 Communications and t r a n s p o r t a t i o n 9.9 of which: Highways (9.1) Education 3.8 Health 0.4 Water s u p p l y and s e v e r a g e 0.8 Kiscellaneous 2.9 of v h i c h : Land r e s e t t l e m e n t (0.1) Admin. b u i l d i n g s , e t c . ( 2 . 4 ) E x p e n d i t u r e s f i n a n c e d by non-US external grants & 1.1 Transfers To Local Governments To S t a t e e n t e r p r i s e s Others - /a T h i s t a b l e p r e s e n t s t h e a c c o u n t s of t h e C e n t r a l Government i n c l u s i v e of e x p e n d i t u r e s financed o u t of e x t e r n a l l o a n s and g r a n t s . Expenditures f i n a n c e d o u t of e x t e r n a l l o a n s and U S g r a n t s a r e i n c l u d e d under t h e r e s p e c t i v e headings. The breakdown of e x p e n d i t u r e s f i n a n c e d o u t o f non-US g r a n t s i s n o t a v a i l a b l e . F i g u r e s a r e f o r d i s - bursements made d u r i n g T h a i f i s c a l y e a r s ending September 30. - /b Includes J u s t i c e . - /C Expenditure on h i r i n g s e r v i c e s o f e x p e r t s and t e c h n i c i a n s , f e l l o w s h i p s , f o r e i g n v o l u n t a r y s e r v i c e s and o t h e r c o s t s of c u r r e n t n a t u r e . /d - E x p e n d i t u r e s on equipment imported t o Thailand. / e I n c l u d e s F o r e s t r y , F i s h i n g and Hunting. - / f F i g u r e s do n o t i n c l u d e p r i n c i p a l repayments of t h e f o l l o w i n g amounts: - - FY70 FY71 FY72 - - FY73 FY74 - - FY75 FY76 - FY77 - P r i n c i p a l Repayment I n t e r n a l Debt 40 516 860 701 1,657 2,384 2,984 1.132 E x t e r n a l Debt 266 181 172 180 232 262 282 295 Source: Bank o f Thailand.  T a b l e A-4: FINANCING OF CENTRAL GOVERNMENT EXPENDITURES ( m i l l i o n s of baht) FY70 FY71 FY72 - FY73 FY74 - - FY75 - FY76 FY77 Actual Actual Actual Actual Actual Actual Actual Preliminary T o t a l Expenditure 24,791 28,449 30,325 32,177 35,658 44,453 54,716 65,530 T o t a l Revenues Tax revenue Nontax revenue E x t r a budgetary r e c e i p t s Foreign g r a n t s Cash D e f i c i t Financed by : E x t e r n a l borrowing Drawings Repayment N e t e x t e r n a l borrowing Domestic f i n a n c i n g ( n e t ) : Borrowing from p u b l i c Borrowing from banking system Government s a v i n g s bank Commercial banks Monetary a u t h o r i t i e s and c u r r e n c y i s s u e s Bank of Thailand 3,525 3,405 3,649 2,167 982 - 174 --340 -6,146 1,525 -837 1,335 639 5,403 4,447 6,411 7,945 Exchange e q u a l i z a t i o n fund 15 191 244 -370 -1 19 137 139 Counterpart fund - 120 51 -9 4 -18 27 28 11 Coin i s s u e 55 138 17 121 149 100 54 92 Net use of c a s h b a l a n c e s 170 1,102 641 -1,598 -5,366 431 762 -1,626b T o t a l Domestic F i n a n c i n g ( n e t ) -- - - - - - - - - - -- /a I n c l u d e s n e t e f f e c t o f e r r o r s and o m i s s i o n s . Source: Bank of Thailand.  Table A-5: CENTRAL GOVERNMENT RECEIPTS, BUDGET FYI977 and 1978 (millions of baht) 1977 % 1978 % % change Income Taxes and duties Sales of goods and services Income from state enterprises /a Loans Bank of Thailand Government Savings Bank Commercial banks, foundations, companies, private institutions Treasury reserves /b Total - /a Before netting subsidies to state enterprises budgeted for B 1,020 million in FYI977 and 1,093 million in FY1978. - /b In 1977 the amounts budgeted were B 2,590 reduction in cash balances and expenditure shortfall of B 2,000. Source: Bureau of the Budget.  Table A-6: FUNCTIONAL CLASSIFICATION OF CENTRAL GOVERNMENT EXPENDITURE BUDGET FY78 (millions of baht) Functional Classification Capital Current Total Economic services Education Public health Social security and welfare Defense Internal security General administration Debt services Miscellaneous Total - - - - - - pp Source: Bureau of the Budget.  Table A-7: LOCAL GOVERNMENT ACCOUNTS - /a ( m i l l i o n s of b a h t ) FY70 M71 FY72 FY73 FY74 M75 M76 FY7 7 Actual Actual Actual Actual Actual Actual Preli- Estimate minary Taxes and o t h e r revenue 1,159 1,338 1,191 1,280 1,617 2,120 Current expenditure 970 988 993 1,048 1,407 1,942 Cur r e n t s u r p l u s 189 350 198 232 210 178 C a p i t a l expenditure 417 486 94 1 910 1,006 1,412 Deficit 228 -136 -743 -678 -796 -1,243 Financed by : T r a n s f e r s from C e n t r a l Government 549 827 691 711 1,234 1,486 Grants and loans / b (-1 (554) (524) (179) (642) (796) Automobile r e g i s t r a t i o n f e e - /c (226) (274) (167) (532) (592) (690) Loans and r e s e r v e funds - /d 122 91 34 4 106 140 115 Cash balances -443 -783 -292 -139 -578 -36 7 -- - - - - - - /a - Thai f i s c a l y e a r s ending September 30. / b Grants and Loans f o r f i n a n c i n g f i x e d c a p i t a l e x p e n d i t u r e p r i o r t o M74 - - /c Automobile r e g i s t r a t i o n f e e s were c o l l e c t e d by t h e C e n t r a l Government and p a r t of t h e proceeds were earmarked f o r t r a n s f e r t o Local Governmente. I n FY74 t h e e n t i r e f e e s were t r a n s f e r r e d t o Local Governmente. - /d Reserve funds held a t M i n i s t r y of I n t e r i o r a g a i n s t which Local Governments may borrow t o f i n a n c e approved p r o j e c t s . Sources: Department of Local A d m i n i s t r a t i o n ( M i n i s t r y o f I n t e r i o r ) and Bank of Thailand.  T a b l e A-8: SATE ENTERPRISES GROSS FIXED CAPITAL EXPENDITURES AND THEIR FINANCING BY FUNCTION (millions of baht) -FY70 FY71 - FY72 Actual Actual Actual M73- Actual FY74 -M75 FY76 A c t u a l Actual P r e l i m i n a r y FY77 Estimate Power 1,0891,3321,8982,3351,9842,5183,414 4,670 E l e c t r i c i t y G e n e r a t i n g A u t h o r i t y /a 652 959 1,417/b 1 , 9 7 1 1,292 1,558 2,238 2,826 Metropolitan E l e c t r i c i t y Authority 278 260 323- 206 358 560 455 624 Provincial E l e c t r i c i t y Authority 159 113 158 159 334 400 72 1 1,220 T r a n s p o r t and Cormunications S t a t e Railways o f Thailand Port ~ u t h o r i o ~ Thailand tf Telephone O r g a n i z a t i o n of Thailand T h a i Airways Co. Ltd. P o s t and Telegraph Fund Express Transport Organization Other Industry - 103 - 71 - - 85 - - 118 178 - 211 - - 180 - - 405 - O i l refineries 3 1 Tobacco Monopoly 49 28 30 55 89 102 72 27 6 T h a i Plywood Co. Ltd. 8 7 9 19 6 7 13 18 N o r t h e a s t Gunny Bag Co.Ltd. 8 3 3 3 14 38 11 1 Glass Organization 16 13 12 3 24 27 40 31 Other 19 20 30 38 45 37 44 79 Agriculture Forest Industrv - O r-ganization Rubber P l a n t a t i o n O r g a n i z a t i o n Other Financial Institutions L o t t e r y Bureau Government Savings Bank Housing P r o j e c t O f f i c e b u n g T h a i Bank Bank f o r Agri. & Agri. C o o p e r a t i v e s Government P a m Shops Commerce and S e r v i c e s - 161 - 191 - 272 418 278 294 - 93 1 4,282 Fuel O i l O r g a n i z a t i o n 69 61 41 59 30 64 53 45 M e t r o p o l i t a n Water Works A u t h o r i t y 77 128 227 35 8 178 120 51 3 2,136 Other 15 2 4 1 70 110 365 2,101 - Total Financed by - O m r e s o u r c e s /b 1,782 1,581 1,469 1,658 1,815 1,719 1,499 2,845 Government g r a n t s and l o a n s 539 746 449 473 430 408 1,943 1,793 Domestic b o r r i w i n g /c - 18 273 552 262 463 49 1 3,388 Government s a v i n g s bank - - 8 139 - 11 110 387 Commercial banks - - 30 110 223 445 270 2,701 Other - 18 235 330 39 7 111 300 E x t e r n a l g r a n t s and l o a n s 323 385 780 1,061 1,264 1,880 2,154 4,141 /a - Yanhee E l e c t r i c i t y A u t h o r i t y , L i g n i t e A u t h o r i t y and N o r t h e a s t E l e c t r i c i t y A u t h o r i t y were merged i n t o t h e E l e c t r i c i t y G e n e r a t i n g A u t h o r i t y o f T h a i l a n d (EGAT) on Hey 1 , 1969. /b P r i m a r i l y p r o v i s i o n f o r d e p r e c i a t i o n p l u s n e t o p e r a t i n g s u r p l u s . - /C .- Bond s a l e s by EGAT o f B 50 m i l l i o n i n FY72, B 234 m i l l i o n i n FY73, B 241 m i l l i o n i n FY74, B 268 m i l l i o n i n FY75, and by N a t i o n a l Housing A u t h o r i t y o f B 500 m i l l i o n i n FY76. Source: Bank of T h a i l a n d .  Table A-9: CDRIIOLIDAm PUBLIC SECTOR KXPENDITUILIS /a (millions of b a h t ) FY70 PY71 PY12 , PY73 FY74 FY75 FY76 FY77 Actual Actual kt-1 ~ct-1 kt-1 hctual ~ct-1 estimate Current Expenditures 17.590 19,629 21,972 24.784 29.122 34,745 39,956 48.831 Defense, a d m i n i s t r a t i o n , e t c . 8 836 10 041 10 444 12 513 13 739 16 292 18 835 22 316 General administration fi *2,118,2,096~-T%T2.95?;** Defense and police 5,241 6.369 6.930 7,340 8,840 10.102 12.349 14.378 Penaiolu 860 580 747 764 908 1.143 1,324 1,505 nincellaneous 980 964 677 2,362 1,527 2.092 1,565 2,786 Economic s e r v i c e s 1 968 2 063 2 031 2 275 2 770 3 332 4 071 5 261 Agriculture /c i ) m 1 , 0 4 6 ~ ~ ~ i $ r ~ 2 , 2 8 9 of vhich: I r r i g a t i o n (398) (402) (392) (409) (538) (572) (702). (773) Induetry and mining 74 76 85 92 129 182 193 204 Power 9 17 9 13 18 22 31 54 Transportation and communicatioas 727 781 799 920 1.052 1.262 1,569 1.727 of which: Bighvays (609) (667) (684) (817) (905) (1,078) (1,112) (1,422) Other economic s e r v i c e s 146 143 135 147 172 195 258 987 Social s e r v i c e s 4 117 4 388 5 730 5 737 7 489 9 278 10 601 13 385 Education * 3 , 1 0 2 ~ ~ ~ * - 8 t b b i . * Health 638 720 735 825 1,065 1,228 1.658 2,551 Other s o c i a l s e r v i c e s 511 566 636 533 638 1,017 542 928 Local Government /d 970 988 993 1.048 1.407 1,942 2,224 2,344 TA Trust Fund fi 92 72 67 54 41 28 10 6 Non-US e x t e r n a l g r a n t s fi /f 235 287 287 305 332 372 385 528 I n t e r e s t payments I n t e r n a l debt External debt C a p i t a l Expenditurea Agriculture /c of which: I r r i g a t i o n I n d w t r y and m i n i q Power Transportation and c.mmunications of vhich: Hghuays Education Health Water supply and sewerage Wscellaneoua of vhich: Iand settlement Mmin. buildinge Local Goverrments /d Non-US e x t e r n a l grant. & fi Transfers C e n t r a l Government t r a m f e r n - 433 - 313 - 486 - 430 -1 6082,013 - 261 to s t a t e e n t e r p r i s e s t o finance operating d e f i e i t a 433 313 486 430 -1 608 -1,359 26 1 Other - - - - - - 3.372k - Mjustments f o r double counting, e t c . -13 -16 -8 -15 - - - - Total Expenditures 27,535 31.048 34,233 36.745 40,820 48,756 61,443 78,684 - /a Consolidated expenditures of the Central and Local Governments plun g r o s s fixed c a p i t a l expenditures of s t a t e e n t e r p r i s e s , including those financed out of e x t c n u l l o a m and grants. Pigurea a r e f o r dimburmelcats during Thai f i n c a l year8 r m n i n g from October 1 t o Septmbar 3 0 . Expenditures financed out of e x t e r n a l loan8 m d US g r a n t s a r e entered under t h e f r m c t i o u d l i n e headinge. Local Govermeat expenditures and expenditures f i r m x e d out of nou-US e x t e r n a l grants a r e entered a s meparate i t a s because no f m c t i o m l breakdo- is a v a i l a b l e . /b Including J u s t i c e . - /c Including Forestry. Fishing. and Bunting. - - Id Functional breakdown not a v a i l a b l e . - /e Expenditure financed out of t h e technical a s s i s t a n c e counterpart fund account. - If Expenditure on aervicem of e x p e r t s and technicians, fellowehips, foreign voluntary s e r v i c e s . and other c o s t s of a current nature. Kxpenditure on equipment imported i n t o Thailand. Note: D e t a i l s do not add t o t o t a l due t o rounding. Source: h n k of 'l'hmiland.  Table A-10: PERCENTAGE DISTRIBWIION OF PUBLIC SECTOR EWENDITLRES - la . -------- FY70 FY71 FY72 FY73 FY74 FY75 IT76 PY77 Actual Actual Actual Actual Actual Actual Actual Estimate Bevised Revised Current Expenditures - 63.9 - 63.2 - 67.4 64.2 - - 71.3 - 71.3 65.0 62.1 Defense, a d m i n i s t r a t i o n . e t c . - 32.1 - 30.5 32.3 - 33.7 - 34.1 - 33.4 - - 28.4 - 30.7 General sdmini.stration /b 6.4 .6.8 6.1 5.6 6.0 61 . 5.9 4.6 Defense and p o l i c e 19.5 20.5 20.2 20.0 21.7 20.7 20.1 18.3 Pensions 3.1 1.9 2.2 2.1 2.2 2. 3 2.2 1.9 n i e c e 1 laneous 3.6 3.1 2.0 6.4 3.8 4. 3 2.5 3.6 Economic a e r v i c e s A g r i c u l t u r e /c - - - 5 7 3 . . 1 7 .9 2.9 - 6 3 . . 2 0 - . 6 6 3 3 . 3 4 . . 6 4 - 6 3 . 4 . 8 - 6 3 . 3 . 6 - 6 2 . . 7 9 of which : I r r i g a t i o n 1.4) 1.3 1.1 1 1 1.3) 1.2 1 . (1.0) I n d u s t r v and minine . 03 0.2 0.2 0.3 0.3 0.4 0.3 0.3 Power - 0.1 - - 0.1 - 0.1 0.1 Transportationandcollpuuications 2.6 2.5 2.4 2.5 2.6 2.6 2.5 2.2 of which: Highvaya (2.2) (2.1) (2.0) (2.2) (2.2) (2.2) (1.8) (1.8) Other economic s e r v i c e s 0.5 0.4 0.4 0.4 0.4 0.4 0.4 1.2 Social services Education Health 2.3 2.3 2.2 2.2 2.6 2.5 2.7 3.2 Other s o c i a l s e r v i c e s 1.9 1.8 1.9 1.5 1.5 . 21 0.9 1.2 Local Governments /d 3.5 3.3 2.9 2 .9 3.4 4.0 3.6 3.0 TA T r u s t Fund Lf! /e 0.3 0.2 0.2 0.1 0.1 0.1 - - Non-US e x t e r n a l g r a n t s /d Lf 0.9 0.9 0.8 0.8 0.8 0.8 0.6 0.7 I n t e r e s t payments I n t e r n a l debt e t e r n a l debt 0.7 0 .6 0.7 0.7 0.7 0.6 0.5 0.9 C a p i t a l Expenditures Agriculture ., of vhich: I r r i n a t i o n I n d u s t r y and mining Pover T r a n s p o r t a t i o n and communications of which: Highways Education Health Water supply and seuerage niscellaneous of which: Zend s e t t l e m e n t Mmin. b u i l d i n g s , e t c Local Government /d Non-US e x t e r n a l g r a n t s /d Transfers - 1.6 - 1.0 - 1.4 - 1.0 - - - 1.3 0.3 C e n t r a l Government t r s n a f e r s t o s t a t e enterprises to finance operating d e f i c i t s . 16 1.0 1.4 1.0 - 1.3 3.3 0.3 Other - - - - - T o t a l Expenditures 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 - /a Consolidated e x p e n d i t u r e s of t h e C e n t r a l and Local Gavernments p l u s g r o s s f i x e d c a p i t a l expenditures o f a t a t e e n t e r p r i s e s , i n c l u d i n g t h o s e financed out of e x t e r n a l l o a n s and g r a n t s . Figures a r e f o r disbursements during Thni f i s c a l y e a r s running from October 1 t o September 30. Expenditures financed out of e x t e r n a l l o s n s and U S g r a n t s a r e entered under t h e f u n c t i o n a l l i n e headings. Local Goverwent expenditures and e x p e n d i t u r e s financed out of non-US e x t e r n a l g r a n t s a r e entered a s a e p a r a t e items because no f u n c t i o n a l breakdown i s a v a i l a b l e . - /b Includiag J u s t i c e . /c - I n c l u d i t q F o r e s t r y , F i s h i n g , and Hunting. - /d Functional breskdown not a v a i l a b l e . - /e Expenditure financed out of t h e t e c h n i c a l a s s i s t a n c e c o u n t e r p a r t fund account. - /f Expenditure on s e r v i c e s of e x p e r t s and t e c h n i c i a n s , f e l l o v s h i p a , f o r e i g n v o l u n t a r y s e r v i c e s , and o t h e r c o s t s of a c u r r e n t n a t u r e . Brpendi t u r e on equipment imported i n t o Thailand. Note: O e t s i l s d o not edd t o t o t a l due t o rounding. Source: b n k of Thailand.  Table A-11: FINANCING OF CONSOLIDATED PUBLIC SECTOR EXPENDITURES ( m i l l i o n s of b a h t ) -FY70 Actual -FY7 1 Actual -FY72 Actual -FY7 3 Actual -FY7 4 Actual - FY7 5 Actual - EY7 6 Actual EY7 7 Estimate Total Expenditure 27,535 Revenues C e n t r a l Government Tax revenue Nontax revenue Foreign g r a n t s Local government revenue 1,159 Extra budgetary r e c e i p t s 773 State enterprise self-financing & 1,994 T o t a l Revenues 23,670 Cash D e f i c i t -3,865 Financing by : E x t e r n a l borrowing Drawings 623 Repayments Net e x t e r n a l borrowing - -634 -1 1 Domestic f i n a n c i n g ( n e t ) Borrowing from p u b l i c 81 Borrowing from banking system - 591 Government s a v i n g s bank 43 5 Commercial banks 156 Monetarv a u t h o r i t i e s and currencv issue Bank of Thailand Exchange E q u a l i z a t i o n Fund 15 Counterpart Fund -1 20 Coin i s s u e 55 Net use of c a s h b a l a n c e s 170 Other -321 - /a F i g u r e s a r e f o r r e c e i p t s and disbursements d u r i n g T h a i f i s c a l y e a r s (October 1 t o September 3 0 ) . - /b I n c l u d e s l o a n s from l o c a l f i n a n c i a l i n s t i t u t i o n 6 and t h e p u b l i c . Source: Bank of Thailand.  Table A.12 : THAILAM), PUBLIC SECTO R DEVELOPMENTS AND R ELATION TO GDP, 1970-77 ( B i l l i o n s of baht) Central Consollidated government sector GDP government Domestic Expenditure State enterprises Total public (current prices) taxes revenues Current Capital capital formation capital information ................................. Percentage  Table A-13: REVENUES OF TH E CENTRAL GOVERNMENT, AND CODES F OR THEIR INTERREGIONAL AND INTRAREGIONAL ALLOCATION, 1972 (amounts i n m i l l i o n s of b a h t ) Interregional A l l o c a t i o n by A l l o c a t i o n /a Household Tax and Revenue C a t e g o r i e s Amount NE/BKK/N/C/S Incomes /b 1. I n d i v i d u a l income t a x 1.555.9 30 2. Corporate income t a x c l a s s i f i e d by t h e following t y p e s of business a c t i v i t i e s 994.1 2.1 Agriculture, f o r e s t r y fishery. 3.5 2.2 Mining 56.0 2.3 Construction and repair 29.8 2.4 Manufacturing 337.2 Food Household Goods Clothing Transport Reading and Recreational Personal c a r e items Tobacco & Drinks Other 2.5 Public U t i l i t i e s and Transport 56 3 2.6 Commerce 318.0 2.7 Banking, insurance, real estate 124.8 2.8 Other s e r v i c e s 68.5 3. Selective s a l e s taxes Entertainment t a x e s 119.5 Liquor 435.4 Beer 207.4 Nonalcoholic beverages Matches Tobacco Cement Snuff O i l and f u e l Other Table A 13: ( c o n t i n u e d ) Interregional A l l o c a t i o n by A l l o c a t i o n /a Household Tax and Revenue C a t e g o r i e s Amount NE/BKK/N/C/S Incomes /b 4. Business t a x e s 4,307.3 4.1 Sales type A 2,364.3 List 1 Food, d r i n k s and tobacco Clothing Cosmetics and medicine Household f u r n i s h i n g s Household t o o l s and utensils Motor v e h i c l e s Fuel, o i l , and petroleum p r o d u c t s Sundry goods Miscellaneous List 2 Food 2.2 Household goods 16.2 Machinery 8.9 Other 161.2 List 3 Upland crop e x p o r t 4.2 Sales type B 792.14 Refrigerators air- conditioners 100 BKK Electrical appliances 5 Passenger c a r s 29 Liquor 12 Printed material 10 Gold and j e w e l r y 13 T i n and rubber exports 100 S Other (food) Table A 1 3 : ( c o n t i n u e d ) Interregional A l l o c a t i o n by A l l o c a t i o n /a Household Tax and Revenue C a t e g o r i e s Amount NE/BKK/N/C/S Incomes /b 4.3 Rice and saw milling 4.4 Contractor and s e r v i c e s 523.6 Printing 13.8 Photographic shops 2.4 Civil construction 220.8 Advertising 11.6 Barbershops beauty salons 3.6 Other 271.4 4.5 Rental s e r v i c e s 12.8 100 BKK 4.6 Storage services 2.7 100 BKK 4.7 Hotel and r e s t a u r a n t s 117.7 Nightclubs 11.1 100 BKK Hotel 54.2 4 Restaurants 52.4 4 4.8 T r a n s p o r t s e r v i c e s 46.2 4.9 Pawnshops - 4.10 Underwriters, auctioneers 39.1 100 BKK 4.11 Real e s t a t e a g e n c i e s 41.9 100 BKK 4.12 Banking and i n s u r a n c e 145.6 21 4.13 Net d e t a i l given 45.9 14 4.14 Stamp d u t i e s and o t h e r 186.6 14 5. Import d u t i e s 5,641.4 5.1 Food 352.1 5.2 Drink and tobacco 471.3 5.3 Raw m a t e r i a l s 127.2 Wood f i b e r 14.8 Clothing f i b e r 46.5 Fertilizer 21.8 Metal and o t h e r raw materials 44.1 5.4 Fuel, o i l , and petroleum p r o d u c t s 285.9 Table A 1 3 : ( c o n t i n u e d ) Interregional A l l o c a t i o n by A l l o c a t i o n /a Household Tax and Revenue C a t e g o r i e s Amount NE/BKK/N/C/S Incomes /b 5.5 Animal and v e g e t a b l e fats 12.3 5.6 Chemical p r o d u c t s 779.4 Chemical compounds 142.0 Dye 88.1 Pharmaseutical products 81.9 Perfumes 86.0 Other 381.4 5.7 Manuf a s c t u r e d goods 1,197.8 Clothes 394.1 L e a t h e r products 2.6 Wood and cork p r o d u c t s 6.3 Rubber p r o d u c t s 88.3 Paper 132.9 Nonmetallic p r o d u c t s 99.4 S i l v e r and a l l o y s 15.8 Other metal p r o d u c t s 458 4 5.8 Machinery and t r a n s p o r t equipment 1,830.2 Heavy machinery 621.9 E l e c t r i c a l generators 384.0 T r a n s p o r t equipment 824.3 5.9 Miscellaneous manufactured goods 164.5 Household f i x t u r e s 11.4 Furniture 6.0 T r a v e l goods 6.8 Clothing 45.4 Shoes 6.9 S c i e n t i f i c equipment, f i l m s , and watches 88.1 5 . 1 0 Others n o t i n c l u d e d elsewhere 420.7 6. Rice premiums 163.2 Table A 1 3 : (continued) Interregional A l l o c a t i o n by A l l o c a t i o n /a Household Tax and Revenue C a t e g o r i e s Amount NE/BKK/N/C/S Incomes , & 7. Other export t a x e s 246.0 Rice Rubber Wood Rawhide Other 8. Taxes on p r o p e r t y 604 1 Motor v e h i c l e s 415.4 Immovable p r o p e r t y registration 188.4 9. R o y a l t i e s and p e r m i t s 847.6 9.1 Royalties 433.1 Bird's n e s t 2.6 100 BKK Fishery 4.9 1 Wood 41.5 5 Other f o r e s t products 6.0 5 Tin 378.2 100 S 9.2 Permits 414.5 Radio Liquor s a l e Other e x c i s e Forest Rubber Alien r e g i s t r a t i o n Lottery s a l e Gambling Gon and fireworks Civil Health 10. Government s a l e s and e e r v i c e s 648.9 10.1 E s t a t e s a l e 5.3 10.2 National products s a l e 14.0 Fuel and o i l 6.2 Wood products 2.8 A g r i c u l t u r a l products 5.0 Table A 1 3 : ( c o n t i n u e d ) Interregional A l l o c a t i o n by A l l o c a t i o n /a Household Tax and Revenue C a t e g o r i e s Amount NE/BKK/N/C/S Incomes /b 10.3 Public u t i l i t i e s - 10.4 Books and documents 0.5 100 BKK 10.5 Other s a l e s 75.2 14 10.6 Services (fees) 475.1 Customs Animal epidemic c o n t r o l Watergate Land and w a t e r transport Fishing Forest conservation A v i a t i o n and a i r p o r t tax 100 BKK vehicles 17 Land f e e s 23 Mineral f e e s 100s Weighting f e e s 14 Others 14 10.7 Rents 78.6 24 .5(14), .5(31) 1 1 . Government monopolies 886.9 C o n t r i b u t i o n s from tobacco monopoly 652.8 L o t t e r y Bureau ( p r o f i t s ) 211.8 Other 2.3 12. S t a t e e n t e r p r i s e s 821.5 14 31 1 3 . Other Revenues 1,068.1 13.1 F i n e s and s u r c h a r g e s 215.4 Surcharges Liquor f i n e s Tax f i n e s Other f i n e s 1 3 . 2 Returned f u n d s Table A 13: (continued) Interregional A l l o c a t i o n by A l l o c a t i o n /a Household Tax and Revenue Categories Amoun t NE/ BKK/N/CIS Incomes - /b 13.3 Miscellaneous 232.6 Interest Mint r e c e i p t s Other Total Revenues 21,296.6 /a - See Table A-14 /b See Table A-17 -  Table A 14: ALLOCATIONS FOR INTERREGIONAL DISTRIBUTION OF PUBLIC REVENUES 1972 Regional D i s t r i b u t i o n ( % ) Source of Code A l l o c a t i o n bases NEI BKKI N/ C/ S Information /a Expenditures : A l l food N SO (1) Food a t home N SO (1) Rice N SO (1) Out s i d e food Nso ( 1 ) Household o p e r a t i o n s N SO (I) Clothing N SO (I) Transport N SO (1) Recreation N SO (1) Education N SO (1) Reading N SO (1) Medical and p e r s o n a l c a r e N SO (1) Tobacco and d r i n k s N SO (1) Other N SO (1) Total N SO (1) Construction p e r m i t s , No. NESDB ( 1 ) Power consumption NESDB ( 1 ) Number motor v e h i c l e s N SO (2) Resident a l i e n s N SO (2) Rice p l a n t e d a r e a s N SO (2) Rice p r o d u c t i o n N SO (2) Urban income d i s t r i b u t i o n N SO (1) Rural income d i s t r i b u t i o n N SO (1) T o t a l income d i s t r i b u t i o n N SO (1) Urban household d i s t r i b u t i o n N S O (1) Rural household d i s t r i b u t i o n N SO (1) Total household d i s t r i b u t i o n Nso ( 1 ) Livestock Value-added NESDB ( 1 ) Forest a r e a s N SO (2) Number of passenger c a r s N SO (2) I n d i v i d u a l income t a x s h a r e M i n i s t r y of Finance . Eept of Revenue - /a NSO ( 1 ) : National S t a t i s t i c s O f f i c e , Socio-economic Survey of 1971-73, Distribution of Consumption by Regions NESDB ( I ) : National Economic and S o c i a l Development Board, N a t i o n a l Income of T h a i l a n d , 1968-72 NSO (2) : National S t a t i s t i c s O f f i c e , S t a t i s t i c a l Yearbook 251811975.  Table-A e: DISAGGREGATED EXPENDITURES OF THE CENTRAL GOVERNMENT, AND INTERREGIONAL AND INTRAREGIONAL ALLOCATION, 1972 CODES FOR (amounts in millions of baht) Interregional Allocation by Allocation /a Household Expenditure Categories Amount NE/BKK/N/C/S Incomes /b 1. Transportation and Communication OUS: M. Communi- cation 8.7 1 34 D. Land Transport 16.0 10 34 D. Civil Aviation 112.9 20/45/20/5/10 41 D. Harbor 48.0 10/10/5/25/50. 7 D. Highways 2,549.1 11 .15(41), .25(7), -18(31) Port Authority 3.6 100 BKK 34 State Railways 60.0 12 .5(7) -5(31) Telephone Authority 1.3 100 BKK 41 2. Educational Services 5,317.3 2.1 Primary Education 2,973.7 1. D. Primary Education 281.8 2. Grants to Provincial Administration 2,691.9 2.2 Secondary and Vocational Education 1,064.9 1. D. Secondary Edu- cation 720.8 16 2. D. Vocational Education 344.1 17 2.3 Higher Education Ramkhamhaeng Chulalongkorn Thammasat Kasetsart Mahidol Chiengmai Silpakorn Khonkaen NIDA Songkhla King Mongkut Inst. of Technology Table A 15: ( c o n t i n u e d ) -- -- . -- - - - Interregional A l l o c a t i o n by A l l o c a t i o n /a Household Expenditure C a t e g o r i e s Amount NE/BKK/N/c/s Incomes /b 2.4 Other E d u c a t i o n a l Expenditures D . P h y s i c a l Education OUS: If. Education Royal I n s t i t u t e N a t i o n a l Education Council D. Teacher T r a i n i n g . D Educational Techniques D. F i n e A r t s N a t i o n a l Research Council N a t i o n a l S p o r t Pro- motion O r g a n i z a t i o n 100 BKK 3. H e a l t h and S o c i a l Welfare 2,509.8 3 1 Public Health 893.4 1. OUS: M. P u b l i c H e a l t h 104.1 2. D. Medicine 407.7 3. D. H e a l t h 369.9 4. Medical Science 11.7 3.2 P u b l i c Welfare 897.1 1. D. P u b l i c Welfare 175.0 22 2. D. R e l i g i o u s A f f a r i s 68.5 24 3. D. Labor 16.3 0/75/0/25/0 4. Government Pawn Shops 5.5 100 BKK 5. Government Pensions 631.8 23 Table A 15: (continued) - - - - - - - - -- . Interregional Allocation by Allocation /a Household Expenditure Categories Amount NE/BKK/N/C/S Incomes /b 3.3 Other Social Services 719.3 1. D. Public Works 235.6 30 2. Metropolitan Water Work 30.0 100 BKK 3. D. Community Deve- lopment 102 8 27 4. D. Science 12.7 1 5. Zoo Organization 1.O 100 BKK 6. Town Planning Office 12.9 27 7. Accelerated Rural Development Office 324.3 - -. - - - - -- - - - - - .- - . . -- - .- - - .- - - - - /a See Table A-16 /b See Table A-17. Numbers in parenthesis are codes as given in Table A-17.  Tablc - - h 16: ALLOCATION FOR INTERREGIONAL DISTRIBUTION OF PUBLIC EXPENDITURES, 1972 Regional D i s t r i b u t i o n Source of Code Allocation bases NE/ BKK/ N/ C/ S Information /a I. D i s t r i b u t i o n of Households 33.31 8.6/23.0/21.8/13.1 NS0 2. Irrigated areas 10.01 0 /10.0/75.0/ 5.0 RID 3. A g r i c u l t u r e v a l u e added 25.9. 0.9122.5134.4116.3 NESDB 4. Rice p l a n t e d a r e a s 44.31 0 /20.4/27.9/ 7.4 M i n i s t r y of Agri. 5. L i v e s t o c k v a l u e added 31.81 3.8/25.5/27.1/11.8 NESDB 6. Reserved f o r e s t a r e a s 24.61 0 /45.6/18.3/11.5 D. F o r e s t r y 7. Power consumption 4.8167.91 5.3117.81 4.1 NESDB 8. Manufacturing v a l u e added 7.0/39.9/ 6.0141.41 5.7 NESDB 9. F i s h c a u g h t , tonnage 3.3/ 0 / 0.4172.4123.9 . Dept of F i s h e r y NE SDB 10. Commercial v e h i c l e s , number 14.4/31.3/11.9/32.3/10.1 11. Road b u i l d i n g exp. by r e g i o n 47.4/12.0/22.3/17.2/10.5 RHD 12. R-eight l o a d i n g , tonnage 6.6/29.6/28.8/24.5/10.5 SRT 13. C u l t i v a t e d land by r e g i o n 45.01 0 /20.0/28.0/ 7.0 S t . Yearbooks 14. Cooperative membership 25.0/17.0/21.0/27.0/10.0 D. C o o p e r a t i v e s 15. Primary p u b l i c t e a c h e r s 20.1/26.5/18.0/21.9/13.5 Min. of Education 16. Secondary p u b l i c t e a c h e r s 18.4/24.6/16.2/28.1/12.7 Min. of Education 17. Vocational p u b l i c t e a c h e r s 19.0/28.2/15.4/23.9/13.5 Kin. of F d u c a t i o n 18. Domicile of U n i v e r s i t y s t u d e n t s 8.0/50.0/10.0/20.0/12.0 NEC 19. Teachers i n t e a c h e r - t r a i n i n g colleges 27.4/ 4.1/24.5/26.0/18.0 Min. of Education 20. Public teachers 14.6/33.7/13.9/24.5/13.3 Min. of Education 21. Hospital expenditures 16.9/34.8/14.3/22.8/11.9 Dept. of H e a l t h 22. P u b l i c w e l f a r e programs 13.9/24.4/21.9/16.2/24.6 Dept. of Pub. Welfare 23. P u b l i c A d m i n i s t r a t l o n VA 17.1/38.1/13.1/22.6/ 9.1 NEDSB 24. 25. Buddhist m o n a s t r i e s Number of Crimes 50.1/ 0.4/22.6/19.8/ 21.8/22.9/16.2/27.2/11.9 7.1 . Dept of Re11 g i o n Dept. of P o l i c e 26. 27. Number of Criminals Number of Provinces 15.7/24.1/15.7/29.5/14.4 21.1/ 2.8122.5133.8119.7 . Dept of C o r r e c t i o n Yearbook 28. D i s t . of t o t a l income 16.7/22.7/19.6/28.7/12.3 NS0 29. D i s t . of urban income 10.0158.21 7.9114.51 9.4 NSO 30. P u b l i c Work 8.3/20.0/26.9/38.9/ 5.9 Dept. of P u b l i c Works 31. ARDactivities 60.01 0 /25.0/10.0/ 5.0 Budget Bureau - /a D e t a i l on s o u r c e s a v a i l a b l e from Mehdi Krongkoew  T a b l e A 17: ALLOCATION BY HOUSEHOLD INCOME Code Number Exp. a l l f o o d Exp. f o d a t home Exp. r i c e Exp. f o o d o u t s i d e Exp. h o u s e h o l d o p e r a t i o n Exp. c l o t h i n g Exp. t r a n s p o r t Exp. r e c r e a t i o n Exp. e d u c a t i o n Exp. r e a d i n g Exp. m e d i c a l and p e r s o n a l c a r e Exp. t o b a c c o and d r i n k s Exp. o t h e r House r e n t E l e c t r i c i t y charges . Exp c h a r c o a l Water c h a r g e s Exp. d e t e r g e n t Exp. men s h i r t s . Exp women b l o u s e s . Exp g a s o l i n e Exp. bus f a r e s Movie a d m i s s i o n f e e s Exp. l o t t e r y t i c k e t s School f e e s Other education f e e s Exp. m e d i c a l and h o s p i t a l Exp. d r u g and m e d i c i n e Exp. c i g a r e t t e s Exp. l i q u o r T o t a l expenditure Urban h o u s e h o l d d i s t r i b u t i o n Rural household d i s t r i b u t i o n T o t a l household d i s t r i b u t i o n Urban income R u r a l income d i s t r i b u t i o n T o t a l income d i s t r i b u t i o n R e c i p r o c a l of t o t a l income Government o f f i c i a l s U n i v e r s i t y S t u d e n t s ' income Top income c l a s s o n l y Petroleum product incidence Exp. = Household e x p e n d i t u r e s o r d e r e d by h o u s e h o l d incomes S o u r c e a v a i l a b l e from 'Eiehdi Krongkoew - * - . --.. "