The Finance Ministry is laying the groundwork for implementation of a negative income tax (NIT) within the next two years, with the aim of propping up Thais whose income falls below a stipulated minimum threshold.
Scheduled to be rolled out in 2027, the recent announcement by Finance Permanent Secretary Lavaron Sangsnit has reignited long simmering debates among policymakers, economists and the general public.
A long road to implementation
The idea of a negative income tax in Thailand is not new. Officials at the Finance Ministry’s Fiscal Policy Office (FPO) first floated the concept a decade ago, embedding it in the 12th National Economic and Social Development Plan (2017-2021).
Despite its inclusion as a national policy, the proposal never gained serious traction, likely due to tepid support from both policymakers and the public.
This time, however, the climate appears to be more favourable. The NIT proposal is sparking robust discussion, with both advocates and critics weighing in.
Thaksin Shinawatra, the de facto leader of the Pheu Thai Party, has thrown his support behind the initiative, making NIT an urgent item on the agenda of the Pheu Thai-led coalition government.
Prime Minister Paetongtarn Shinawatra, before her suspension by a court order, had similarly backed the NIT as a key tool to address poverty and income inequality.
At its core, NIT is designed to support people whose incomes are lower than a certain threshold. Unlike conventional income taxes where citizens pay the government, the NIT facilitates payment by the government to low-income earners, effectively supplementing their earnings to help achieve basic living standards.
The concept was introduced by economics Nobel laureate Milton Friedman in his influential 1962 book, “Capitalism and Freedom”. Friedman believed that NIT would offer a more streamlined and dignified approach to alleviating poverty compared to traditional welfare systems.
“Many developed countries have implemented the NIT, but they are not exactly what Friedman has advocated. In some countries different governments [formed by rival political parties] want to rebrand or engage in political gimmicks to seek political popularity,” observes Pan Ananapibut, director of the Tax Policy Division at the FPO and current head of Thailand's NIT study team.
Friedman’s rationale was simple: provide cash directly to those in need, bypassing the complexities and inefficiencies of multiple overlapping welfare programs. This system, he argued, could be administered in the US centrally by the Internal Revenue Service (IRS), freeing recipients to spend the support funds as they see fit and maximising the impact of government transfers.
NIT versus the welfare state
Opinions of economists and politicians on NIT often align with broader views on the proper size and role of government. Proponents of a smaller government typically favor NIT, as it targets assistance specifically to those below a defined income level, such as below the poverty line, rather than dispersing broad-based welfare benefits.
Meanwhile, advocates for a universal welfare approach remain skeptical of NIT. Though universal welfare programs boast broader coverage, their costs are significantly higher. For instance, countries with comprehensive state welfare schemes often have correspondingly high tax rates—Scandinavia’s value-added tax (VAT) rate, for example, stands at 25 per cent, compared to just 7 per cent in Thailand.
Within Scandinavia, Sweden has managed to incorporate NIT elements alongside universal benefits.
Pan points out that each country’s system varies. “The income threshold and rate of transfer could be adjusted to meet Thailand’s conditions,” he notes, suggesting that lessons may be drawn from Malaysia, which is at a similar stage of economic development as Thailand, though its per capita income is notably higher.
Challenges to implementing NIT
A significant barrier to implementing the idea, especially in developing economies, is the challenge of verifying individual incomes accurately. In most countries with successful NIT programs, the majority of the population is middle class, with the absolute poor and the very wealthy making up minorities. Thailand’s more varied income distribution complicates matters.
Even among NIT proponents, concerns about verification persist. “I agree absolutely with the NIT concept, but verifying the people’s income would be difficult. Because of the scheme, large numbers of people may want to disguise themselves as low-income earners [in order to be eligible for transfers from the government],” Prof Sakon Varunyuwatana, former dean of Thammasat University’s Economics Faculty, cautions.
Pan argues that Thailand’s increasingly cashless society provides a solution.
“Thailand has changed a lot from a decade ago. People are familiar with bank applications that enable them to make digital payments by using a mobile phone to scan QR codes or transferring money electronically,” he says.
Such transactions are digitally traceable, giving tax agencies valuable data to verify income sources more accurately.
The COVID-19 pandemic underscored this capacity, as millions registered via government applications to receive one-time handouts, creating an extensive pool of financial data.
One compelling argument for introducing NIT is its potential to expand the nation’s tax base, incentivizing more people to file annual tax returns with the promise that they, too, could become recipients of government payments.
Currently, of the 30 million workforce only 11 million file annual taxes and only about 4 million actually pay annual income tax.
Still, obstacles remain. A largely cash-based economy makes income verification difficult. But, as Pan reiterates, the shift toward electronic transfers and digital payments represents a promising development.
“Such electronic transfers can be traced, so tax agencies can use such data to verify people's incomes accurately.”
As of now around 14 million Thais hold welfare cards, qualifying as low-income with annual earnings of not more than 100,000 baht per annum.
Should the government implement NIT, these figures would need to be updated yearly to ensure that low earners receive government support, while those whose incomes rise above the threshold would be required to pay taxes the following year.
Alternative approaches to poverty alleviation
Despite the momentum behind NIT, universal welfare remains a popular suggestion. Critics of targeted support warn that such systems risk excluding those truly in need, either due to corruption, administrative lapses or other inefficiencies.
The opposition People’s Party, for example, has consistently campaigned for a robust state welfare system.
One idea is to increase the VAT from 7 to 10 per cent, earmarking the additional revenue specifically to support the poor. However, Thirachai Phuvanatnaranubala, a former finance minister and deputy leader of the Phalang Pracharath Party, dismisses NIT as “another populist policy of the Pheu Thai Party”.
What key data and insights reveal
Finance permanent secretary Lavaron says that the government currently has data coverage for 60.8 million individuals and 600,000 business organizations.
With this comprehensive information, the government is prepared to implement a negative income tax system to promote welfare justice and ensure accuracy.
According to the state think tank, National Economic and Social Development Council, there were approximately 19 million workers in the formal sector in 2022.
Only 10.7 million people filed annual tax returns, and out of these just 4.2 million were required to pay tax.
Whether Thailand’s current government or its successor will move forward with NIT remains uncertain. Nevertheless, the proposal could stir a hot policy debate in the run-up to the next general election scheduled for mid-2027.
The policy’s fate will likely center on the ability to verify incomes accurately and redistribute resources fairly to people most in need—a formidable but potentially transformative challenge for the nation.
