A woman displays a message of support for the government’s 10,000-baht digital wallet scheme. Over the past two decades, successive administrations have implemented populist policies that significantly increased welfare spending, leading to higher public debt and a rising interest burden.

In 2026, the incoming government is likely to face a host of internal and external challenges, with Thailand’s fiscal position a longstanding problem that has become more strained amid sluggish economic growth.

This mounting pressure already prompted Moody’s and Fitch Ratings to revise the country’s outlook from stable to negative.

Aside from the current government’s efforts to inject stimulus to prevent the economy from stalling and to lift GDP, policymakers want to increase government revenue through tax reform to ensure the state interest burden relative to net revenue does not rise to a level that affects the country’s sovereign rating.

Over the past two decades, successive administrations have implemented populist policies that significantly increased welfare spending, leading to higher public debt and a rising interest burden.

In 2024, the ratio of interest payments to government revenue was 9.59%, rising to 10.2% in 2025.

REVENUE CONCERNS

A Finance Ministry source who requested anonymity said the ratio of government revenue to GDP has been steadily declining – from 17% in 1993 to 14.9% in 2025.

As revenue declines, government expenditure has only become more crucial in stimulating the economy, especially during periods of stagnation, rising borrowing costs, and high household debt. This trend is reflected in the rising ratio of government spending to GDP.

The Finance Ministry plans to adopt a data lake system to improve tax collection efficiency and broaden the revenue base, aiming to raise the value-added tax (VAT) rate to 8.5% in 2028 and 10% in 2030, up from the current 7%.

The government is currently drafting the fiscal 2027 budget bill, and the Finance Ministry estimates state revenue at 3 trillion baht, 2.7% higher than in fiscal 2026. However, this net revenue estimate does not include potential impacts from US tariff measures or the increased use of tax incentives as Thailand expands trade liberalisation with other countries.

An important assumption in the revenue projections for fiscal 2027 is the Finance Ministry’s focus on bringing all individuals who meet the income threshold into the tax system, strengthening oversight of large enterprises and multinational companies with affiliated entities, and identifying informal sector businesses. These efforts aim to ensure fairness, broaden compliance, and reflect the true potential of Thailand’s tax system.

TAX REFORM PLANS

Other reform efforts include restructuring excise taxes on oil and petroleum products, alcohol, tobacco, beverages, and batteries to align with environmental and health principles, as well as restructuring taxes on goods and services based on luxury consumption principles.

The Revenue Department’s tax reform plan includes:

1. Reforming personal income tax brackets and reassessing certain deductions to improve fairness, expected to increase government revenue by 45.8 billion baht.

2. Introducing an outbound travel tax, expected to generate 12 billion baht.

3. Collecting top-up taxes under the 2024 Top-Up Tax Emergency Decree, based on the Organisation for Economic Co-operation and Development (OECD) Pillar 2 framework concerning tax avoidance, expected to raise 8.4 billion baht.

The top-up tax applies to large multinational enterprises (MNEs) with annual revenue of at least €750 million (26.8 billion baht) for accounting periods beginning on or after Jan 1, 2025.

The tax is designed to ensure MNEs pay a minimum level of corporate income tax, typically aligned with the global minimum tax initiative led by the OECD.

For excise taxes, the government plans to increase the excise tax on oil from 1 baht per litre, generating an additional 33 billion baht. Measures to revise and increase "sin taxes" on alcohol, beer and tobacco are expected to raise 5.45 billion baht.

Meanwhile, restructuring taxes on environmentally harmful products, including the potential adoption of a carbon tax, is projected to bring in 6 billion baht.

The Customs Department plans to eliminate the duty exemption for low-value imports worth less than 1,500 baht, which is expected to generate 3 billion baht.

In addition, revenue from petroleum concessions will incorporate the shift from a concession system to a production-sharing contract system, generating an estimated 71.3 billion baht, along with 12.9 billion in licence fees.

For fiscal years 2028 to 2030, Thailand enters a critical period of tax restructuring as the Finance Ministry proceeds with phased increases of the VAT rate to 8.5% in 2028 and 10% in 2030, rising from 7%, according to the source.

"If these measures cannot be implemented, it will be necessary to consider reducing the annual budget expenditure framework to match the decline in revenue, in order to maintain the budget deficit within the targeted range," the source said.

Regarding public debt, the government’s debt-to-GDP ratio has risen since the pandemic, tallying 65.2% of GDP in October.

The government projects the figure will rise to 68.1% in fiscal 2026 and 69.7% in fiscal 2028, approaching the government’s statutory ceiling of 70% of GDP.