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DECENTRALIZATION in Thailand Fiscal Policy Bureau Fiscal Policy Office
Decentralization in Thailand • The new constitution 1997 and The Decentralization Act 1999 play a key role in decentralization • The process started in 2001 by devolving public services to Local governments parallel to allocating revenue
Decentralization Goals • Devolving and allocation of public service responsibilities among levels of local government within 10 years. • Increasing the share of local revenue relative to total government revenues (including intergovernmental transfers) to 20 percent by the end of 2001, and to 35 percent by the end of 2006.
Current Situation • Public service was transferred to local governments 174 from 245 services • the share of local revenue relative to total government revenueshas increased from 20.68 % in 1999 to 23.50% in 2005
Current Situation • Local government expenditure ratio has increased from 7.18 (1993) to 15.16 (2002) compare to government expenditure • Financing gaps between revenues and expenditure may increasing as of decentralization process • No Debt financing has adopted by local governments in Thailand
Fiscal Public Policy • Government • Local Authorities • State Enterprises At present, the Government aims to increase the role of Local Authorities in promoting economic development. Economic Development
Roles and Functions of Local Authorities Local Authorities' expenditure /Government's expenditure Source : Government Finance Statistic Year Book 1999
Fiscal decentralization • Advantages of fiscal decentralization Economic - Enhance local public services to meet local needs - Incentive for local people to pay local tax - Immune system to protect financial crisis
Fiscal decentralization • Advantages of fiscal decentralization Social - Enhance democratic system - Improve local leadership
Local Authorities revenues • Sources of income - Local levied Tax - Surcharge Tax - Shared Tax - Non-Tax Revenues ex fee fines and licenses - Grants - Accumulate fund - Loans - Others
Comparison of Local Revenue and Government Revenue Local Levied Tax Surcharged Tax and Shared Tax
Local Revenue Land Levied Tax - House and building Tax - Land Development - Signboard Tax - Animal Slaughter Tax Surcharged and Shared Tax - Excise Tax - Value Added Tax * - Specific Business Tax - Land Registration fee - Automobile Tax (Vehicle Tax) Non-Tax Revenue - Fee/Fines and License - Miscellaneous Revenue Special Revenue - Grant/Subsidies - Loans
Current Issue on Fiscal Decentralization • Revenue - Not less than 20% of government's revenues in 2001 - Not less than 35% of government's revenues in 2006
Fiscal Decentralization Progress • LR/GR - Year 2000 12.63% - Year 2001 20.68% - Year 2002 21.88% - Year 2003 22.19% - Year 2004 22.50% - Year 2005 23.50%
Fiscal Decentralization • %LR/GR= 35in the Fiscal Year 2005 • The health and educational services have to be transferred • Amending the Decentralization Act • Local Revenues target is still 35% of Government Revenues. • Extend the year which is set by the National Decentralization Committee.
Fiscal Decentralization • In order or achieve local government revenue to 35% We have plan to, • expanding taxes-base and increasing taxes-rate • increasing efficiency and transparency of collecting taxes system • establishing the new taxes such as Environment Tax Act • issuing the Property Tax Act
Long Terms local fiscal policies • To increase the share of local revenue collected by modernizing the new local tax • To enhance the local collecting tax system
Long Terms local fiscal policies • Local Fiscal Discipline must be aware to sustain economic stability • Short term debt instruments must be carefully prepared as alternatives to fulfill fiscal gaps • Enhance the local fiscal capacity by introducing the Finance Corporation for Local Authorities Development (FCLAD)
Estimation on Local Authority Revenue Unit : Million Baht • P.S. : • 1/ Local authority Revenue : Land and Building , Land Development Tax , and Signboard • Tax , etc. • 2/ Surcharge Tax and Share Tax : VAT (1/9) , Business Tax , Excites Tax , etc. • 3/ In year 2001-2002, grant include revenue for service responsibilities devolution program • Source : Fiscal Policy Bureau
Local Authority Expenditure Unit : Million Baht P.S. : 1/ Preliminary Data. 2/ Carry over only Bangkok Metropolitan Administration. Source : Fiscal Policy Bureau
Revenue and Expenditure structure between Local Gov. and Central Gov. 2002