Thailand faces a looming tax shortfall as its economy slows and job losses rise. Yet the Finance Ministry is pushing ahead with VAT expansion and tougher enforcement, aiming to boost revenue and meet OECD standards amid mounting fiscal and global pressures.
Thailand’s new Revenue Department Director-General, Pinsai Suraswadi, admitted Thursday that full-year tax receipts could fall short by as much as ฿20 billion. The shortfall comes amid reduced employment already weighing on the economy, with deeper impacts expected in the second half of 2025 due to the Trump-era tariff regime. At the same time, the Ministry of Finance is pushing ahead with plans to broaden the country’s tax base. A key proposal under consideration is the reintroduction of a flat-rate VAT for small businesses earning more than ฿600,000 annually. This initiative is also closely tied to Thailand’s roadmap to become a full member of the Organisation for Economic Co-operation and Development (OECD). Tax revenue as a share of GDP has fallen from 17.7% in 2007 to just over 13% in 2024. By comparison, the average for OECD member countries stands at 34%. The government sees tax reform as essential to aligning with international standards and securing long-term economic stability.
Thailand’s push to join the Organisation for Economic Co-operation and Development (OECD) is reshaping its domestic tax policy. One of the clearest shifts is the planned return of value-added tax (VAT) for small businesses. At the same time, tax enforcement is tightening across multiple sectors. Officials say these changes are necessary to offset revenue risks and to bring the country in line with OECD standards.
In the first seven months of fiscal 2025, the Revenue Department collected ฿1.14 trillion. This figure exceeded the period’s target by ฿17.9 billion and surpassed last year’s total by ฿47.3 billion.
However, despite the strong start, revenue officials now warn that annual collections may still fall short.
Revenue Department warns of shortfall as tax breaks and energy losses dent final 2025 projections
Director-General of the Revenue Department, Pinsai Suraswadi, admitted the agency faces increasing headwinds. He noted that full-year revenue could miss the target by as much as ฿20 billion. This is a more optimistic figure than earlier projections. Previously, the Fiscal Policy Office estimated a shortfall of ฿36 billion.
Yet there are clear warning signs. Petroleum tax revenue is expected to fall ฿10 billion below target. The reason is simple: many energy companies are applying accumulated losses to reduce taxable income. Therefore, tax payments from this sector are much lower than forecasted.
Financial institutions are following similar strategies. Although 11 Thai commercial banks posted first-quarter profits of ฿68.3 billion —a 12.1% rise from late 2024—tax revenue from the sector is not rising in tandem.
That’s because many banks are engaging in tax planning to minimise liabilities using prior-year losses.
Consequently, the Revenue Department is preparing new measures to stabilise and grow revenue. For fiscal 2026, the department’s target will rise by ฿100 billion. Mr Pinsai confirmed that policy changes are already being studied.
Controversial VAT expansion and outbound traveller tax proposed amid growing need for revenue solutions
Among them is a tax on outbound travellers, now under discussion. However, the most controversial option is a possible increase in the VAT rate.
VAT changes have long been politically fraught in Thailand. In 2024, Finance Minister Pichai Chunhavajira floated the idea of a VAT rate hike. Public backlash was swift. Within days, Prime Minister Paetongtarn Shinawatra dismissed the proposal entirely.
Nevertheless, Mr Pichai has now suggested expanding VAT coverage instead of raising the rate. Under the plan, businesses earning under ฿1.8 million annually would be brought into the VAT system. The Revenue Department is actively studying this idea.
If implemented, this would represent a major policy reversal. When VAT was first introduced in Thailand in 1992, even the smallest firms were included. Back then, businesses earning over ฿120,000 were required to register.
Those with revenue between ฿120,000 and ฿600,000 paid a flat VAT rate of 1.5%. However, these firms could not deduct input VAT from output VAT. The flat-rate VAT system was eventually abolished because it generated only ฿400 million a year.
VAT system may return for micro businesses to boost formalisation and plug revenue leaks in grey economy
Now, the department sees renewed value in the flat-rate approach. If reintroduced for businesses earning ฿600,000 to ฿1.8 million, it could generate up to ฿6 billion annually. Moreover, tighter enforcement would aim to pull much of the informal “grey economy” into the formal tax net.
These reforms are not happening in isolation. They are closely tied to Thailand’s broader ambition of joining the OECD. Thailand has maintained ties with the OECD for over 20 years. It joined the Programme for International Student Assessment (PISA) in 2000.
In 2018, it became the first Southeast Asian nation to launch an OECD Country Programme. Since then, Thailand has participated in ten OECD bodies and adhered to 11 legal instruments.
Thailand formally began accession talks on June 17, 2024, following its submission of a letter of intent in February. It is now in the second phase of the OECD accession process.
A detailed roadmap is being drafted to guide alignment with OECD rules and standards. These include higher taxation, stronger compliance and increased social spending.
OECD membership could reshape Thailand’s global image. The kingdom hopes the move will attract foreign investment and signal political stability. It would mark a break from its past reputation as a low-tax, coup-prone tiger economy. It would also put Thailand on a governance path more in line with Western democracies.
Falling tax-to-GDP ratio poses challenge to Thailand’s OECD ambitions and long-term fiscal sustainability
Thailand’s tax-to-GDP ratio must rise if this goal is to be achieved. In 2007, tax revenue was 17.7% of GDP. The figure peaked at 19.3% in 2013 but declined to 16.4% by 2021. As of December 2023, the tax-to-GDP ratio had fallen further to 13.2%, down from 13.4% the previous year.
The Ministry of Finance wants to raise the ratio to 18%. Reaching that goal will require structural reforms, not just quick fixes. Expanding VAT, taxing outbound travellers, and enforcing compliance are all key steps.
But these measures come at a delicate time. Thailand’s economy is showing signs of stress. In the first quarter of 2025, over 360,000 Thais lost their jobs. Most of these losses occurred in the industrial sector, which continues to contract.
The National Statistical Office released detailed figures on the employment situation. As of Q1 2025, there were 59.36 million people aged 15 and older. Of this group, 40.09 million were in the labour force. The remaining 19.27 million were outside the labour force.
Of the active labour force, 39.38 million people were employed. Around 350,000 were classified as seasonal workers. Unemployment stood at 360,000 people, or 0.9%. That rate was slightly lower than the same period last year, though not reassuring.
Labour market pressures show signs of weakness despite growth in services, fuelling urgency for tax reform
Notably, employment dropped by about 200,000 from Q1 2024, driven by losses in the agricultural sector. On the other hand, jobs in hospitality, defence and personal services showed modest growth. These sectors are expanding despite wider economic turbulence.
However, several industries continue to struggle. Employment has declined in construction, automotive repair and retail. These losses reflect broader issues in domestic demand and investment confidence.
Officials are urging long-term solutions. The National Statistical Office recommends upskilling the workforce and boosting support for the industrial sector. These steps, it says, are critical to securing long-term stability.
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In the meantime, the government must act to secure revenue. The Revenue Department’s new approach—targeting small firms, expanding VAT, and enforcing compliance—marks a clear policy pivot. That pivot is driven not only by fiscal need but by a desire to meet global standards.
Thailand’s path to OECD membership could redefine its economic future. But that path demands difficult decisions—and disciplined follow-through.
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Further reading:
55% of Foreign Expats thought of moving out of Thailand in 2024. Majority will not file tax returns
End of the road proposed for Thailand’s ‘Happy go-Lucky’ Economy in Paetongtarn’s Policy Statement
Revenue Department preparing legislation as new Expat tax regime may link visas and tax returns
New tax era in Thailand begins as Revenue now shares data with 138 countries within the OECD
Calls for clarification of new Tax regime which appears to target expat foreign income sources
10 year visa a magnet for global citizens setting up in Thailand with zero tax on offshore income
Wealthy foreigners to own small landholdings associated with homes here agreed in principle
New plan for the Thai economy could see an elite foreign visa scheme generate up to 6% of GDP
Economic plan to put the smile back in Thailand’s appeal to western foreigners to live and work
