Tax Incidence in Thailand

1. Jonathan Haughton Suffolk University, Boston Jonathan.haughton@suffolk.edu For the World Bank. May 11, 2011 Tax Incidence in Thailand

2. The Questions • Who bears the burden of taxes? • Who benefits from government spending? • What are the net effects? • Who would gain/lose under different possible tax reform packages, and by how much? JH: Tax & Expenditure Incidence in Peru

3. Example 1: Peru: Tax Revenue • Central government tax revenue • 11.6% of GDP in 2004 • Buoyant since 2002 • 71% of revenue from indirect tax • Vat: 19% rate; but yields just 4.9% of GDP • Income tax: 3.4% of GDP JH: Tax & Expenditure Incidence in Peru

4. Example 2: VietnamCentral Government Revenue

5. Vietnam: Main taxes (% of GDP)

6. Vietnam: Noteworthy trends • Revenue/GDP: 20% to 2000, now 25% • VAT: 7% of GDP (at 10% rate!) • Trade: from 4% to 2% of GDP, despite explosion of imports • All income tax: Peaked at 10% GDP in 2006, but dependent on SOE sector • NB: PIT raises 2% of revenue; surprisingly, not rising

7. Thailand

8. Measuring Incidence (1) • Step 1. Make assumptions about incidence • Statutory incidence ≠ Effective incidence • See Table JH: Tax & Expenditure Incidence in Peru

9. Incidence assumptions • VAT: on consumers • Excises: on consumers • PIT: on earners • Business profits: on earners • Other taxes: • Property transfer; local fees and contributions: on payers. • In this study, CIT, trade taxes, natural resource taxes, not included. Incidence covers half of revenue.

10. Partial equilibrium incidence S(1+t) price supply Pd2 P1 Ps2 demand Q1 quantity Q2

11. Elastic supply price What elasticity? S(1+t) Pd2 supply P1=Ps2 demand Q2 Q1 quantity

12. JH: Tax & Expenditure Incidence in Peru

13. Measuring Incidence (2) • Step 2. Quantify the effects • Trace effect of a tax, spending change on every household in a survey • ENNIV 2000. 3,997 households, 19,957 people, LSMS template • NB. Assumes equal sharing within household JH: Tax & Expenditure Incidence in Peru

14. Measuring Incidence (3) • Operationalize the analysis • Excel spreadsheet • Stata dataset and programs. Change spreadsheet; it invokes Stata, returns the results. JH: Tax & Expenditure Incidence in Peru

15. Vietnam: Main data source: VHLSS-2006 • 9,189 households, including 4,298 from 2004 round. • Two visits per household; 93% of interviews in June, Sept or Oct. • Some explicit tax information (e.g. business taxes); otherwise has to be inferred (e.g. VAT, PIT).

16. Thailand • Socio-economic survey, 2009 • 47-page data dictionary • 139,590 individuals • From 43,844 households • Aside: US 1% IRS file plus non-filers: c. 150,000 filers.

17. Peru: Tax 1: VAT • 19% rate. Fairly stable since 1992. • Exports zero rated • Exemptions include clothing, rice, milk, fish, vegetables, ed. fees, home consumption, housing • In 2000: • 42% of central gov. tax revenue • Collected 7.3% of household expenditure. JH: Tax & Expenditure Incidence in Peru

18. Vietnam (like Peru): How robust are the survey results?

19. Peru: VAT incidence JH: Tax & Expenditure Incidence in Peru

20. Peru: VAT incidence Regressivity probably overstated, if poor are more likely to buy in informal sector • By expenditure/cap: slightly regressive • By income/cap: highly regressive JH: Tax & Expenditure Incidence in Peru

21. Income or Expenditure incidence? • Income: • Easy to measure • Widely used in developed countries • Overstates regressivity: “lifetime income” • Expenditure • Less underreporting than income • Closer to “permanent income” • May understate regressivity JH: Tax & Expenditure Incidence in Peru

22. Peru: Tax 2: Excises • In 2000, summarized: • Alcohol, especially beer (t=27.8% of 84% of rec. prodr. price) • Soft drinks (t=17% ex factory) • Cigarettes (t=37.2%) • New vehicles (t=10%) • Motor fuel • Gasoline (S/.2.90 per gallon) • Diesel S/.2.29 per gallon) JH: Tax & Expenditure Incidence in Peru

23. JH: Tax & Expenditure Incidence in Peru

24. JH: Tax & Expenditure Incidence in Peru

25. Sin taxes Note under-reporting of expenditures JH: Tax & Expenditure Incidence in Peru

26. JH: Tax & Expenditure Incidence in Peru

27. Transport taxes Notes: Fuel numbers overstate progressivity, because of the “bus and truck problem” Vehicle numbers assume purchases in proportion to ownership, which is awkward Ideal is to run this through an input-output table JH: Tax & Expenditure Incidence in Peru

28. Thailand: Indirect taxes (1st pass)

29. Thailand: Indirect, then 3 baht/l on petroleum products

30. Peru: Tax 3: Personal Income JH: Tax & Expenditure Incidence in Peru

31. Peru: All taxes Progressive or not? JH: Tax & Expenditure Incidence in Peru

32. NB: Horizontal inequity JH: Tax & Expenditure Incidence in Peru

33. Vietnam: tax by tax (1)

34. Vietnam: tax by tax (2)

35. Vietnam: tax by tax (3)

36. Vietnam: tax by tax (4)

37. Vietnam: Incidence: comments 1 • In Vietnam, incidence pattern by expenditure/cap decile similar to that by income/cap • Contrast with Peru • These taxes are progressive overall • Heavier, more progressive, than 1998 • VAT is generally progressive – mainly due to home production (1/3 at bottom, 1% at top); not the case in all countries • Excise taxes are progressive – also a bit surprising.

38. Vietnam: Which tax is most progressive?

39. Technical Issues • Regional effects • Personal Income Tax • Property Tax • Expenditure incidence • Marginal full incidence • Policy reforms

40. Regional effects: Vietnam • Higher tax rates in south • Highest rate in South-Central Coast (sampling error?) • Urban/rural gap in burden is surprisingly small

41. Vietnam: Tax policy 1: PIT

42. Vietnam: Method 1: VHLSS-2006

43. Vietnam: PIT: comments 1 • Method: strip out business income tax and PIT, and apply rules of new tax • Revenue: from VND127k to VND21k per person. • New tax highly progressive. • But: excludes foreigners; very small sample size for PIT and for large household enterprises.

44. Vietnam: Method 1: High-income survey • Done by General Dept. of Taxation in 2005, using tax rolls • Survey, asking about income, spending • 15,500: 3,200 foreign, 7,200 PIT, 5,100 business income tax • 11,535 responses (74%); low in HCMC, among foreigners. Results re-weighted. • Anything equivalent in Thailand?

46. Vietnam: Comparison, old vs. new PIT • Based on 2009 • NB. PIT very elastic • Total revenue: -5% • Foreigners: down by a quarter • Vietnamese: tax payments up • Reconcile with VHLSS data • High-income individuals would pay more • Not-so-high income individuals would pay less, and not be in the tax net as much • Difficult to merge the two; in progress. • Keep: taxes foreigners, adds equity. Enforcement could be better. Perhaps limit top rate to top CIT. Adjust brackets for inflation (as in US).

47. Vietnam: Property tax? • VHLSS has limited data on property: • Residence; non-agric. real estate • Assume tax would not apply to agricultural property, or to movable property. • 1% of capital value; arbitrary

48. Vietnam: Who would bear a property tax?

49. Vietnam: Comments on property tax • Highly progressive • 1% is steep; 7.8% of expenditure, so politically infeasible at this level. • Cash flow concerns • Based on bubble prices? • Introduction of tax would reduce base • Excludes corporate ownership

50. Vietnam: regional effects of property tax