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MSC Insight

Negative Income Tax

What Is Negative Income Tax?

Negative income tax (“NIT”) is a concept known and implemented under different names in countries like the US, UK and some other welfare states. NIT is recently introduced by the Thai government which is planned to be implemented by the year 2027. The idea behind it is for the government to be able to collect low-income earners’ data that would never be collected if NIT is not enforced.

NIT is basically a give-and-take mechanism, where low-income earners who currently are not obligated to pay any income tax will be required to file personal income tax returns in exchange for a government welfare in monetary form (subsidy). The government is to set an ‘income threshold’ that is in inverse proportion to the ‘rate of subsidy’ to be provided.

What Is the Drive and Why Now?

In 2023, only 11.8 million income earners filed personal income tax returns, when it is recorded that there were approximately 40.45 million in the market.[1] Thai government and tax authorities reported that this had obstructed them from collecting complete and concise data on personal income in order to effectively design appropriate welfare policies that would effectively help people in need. This, therefore, initiates an interest in exploring the idea of enforcing NIT in Thailand.

What Could be the Effects of NIT in Thailand?

Currently, the making of NIT legislation is in process. The following paragraphs are what we would expect from the legislation.

There should be more targeted support for people with low incomes because the government would have access to reliable income information if individuals were legally required to file personal income tax returns.
There should be an increasing in number of personal income taxpayers.
It should enhance fiscal efficiency and reduce redundancy in welfare projects. It is reported that Thai government had struggled to accurately target eligible beneficiaries, which frequently led to inefficient use of government budget due to redundancy and poorly-targeted help.

Providing welfare without properly assessing income results in an excessive fiscal burden, as welfares are allocated to individuals who are not genuinely in need. The ‘old-age allowance’ can be a good example where government’s resources are provided to affluent senior citizen in the same manner as those actually in poverty.

Also, the ‘state welfare card’ statistics from the Office of the National Economic and Social Development Council in 2023 showed that only 6.12% of people in poverty received their welfare cards.[2]

Questions That Still Need Answers

Will there be double taxation? In other words, will the subsidy given to those in need be considered taxable income?
The government needs to strike a good balance between taking resources from those capable of earning income and paying taxes and the benefits to be given to those in need. The NIT will create exceptional results if the government could find a good balance between the two.
NIT may cause a burden for tax authorities. Additional resources shall be put in place to handle the increasing load of work. Data management systems and budget may be needed in order to handle the additional filings and to verify the information accurately.

It is also very important to communicate how NIT works and how it would be beneficial to the targeted group, so that they can coordinate in a helpful way as the government desires. Otherwise, it would be another attempt that bites the dust.