VAT highly re­gres­sive

Bangkok Post - - OPINION -

Per­haps brevity ex­plains the ques­tion­able logic that Khun Kal­abutr Komenkul em­ployed in his Oct 8 let­ter, “A tax­ing con­cern”, in which he claimed that VAT is a pro­por­tional, or flat-rate tax. Whilst this is true re­gard­ing the in­ci­dence of the tax (ie on whom it is levied), its im­pact is highly re­gres­sive in na­ture, as those on lower in­comes tend to spend all of their in­come and, there­fore, the tax ac­counts for a much higher per­cent­age of their to­tal in­come — the clas­sic def­i­ni­tion of a re­gres­sive tax! Peo­ple on higher in­comes save a sig­nif­i­cant per­cent­age of their in­come and so can avoid the im­pact of the ex­pen­di­ture tax more eas­ily.

Fur­ther­more, to ar­gue that the re­sul­tant fall in ag­gre­gate con­sump­tion, fol­low­ing the price in­creases caused by the rise in VAT rates, will be com­pen­sated for by in­creased pre-tax con­sump­tion is a lit­tle far-fetched, un­less peo­ple have large amounts of in­come and can af­ford to buy con­sid­er­able quan­ti­ties of goods that they will even­tu­ally con­sume over the course of the higher tax pe­riod.

The poor are un­likely to have the means to be able to af­ford such ex­pen­di­ture in ad­vance of the tax in­crease, thereby ex­ac­er­bat­ing the re­gres­sive im­pact of the VAT in­crease. GMT

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