The recent policy debate surrounding a negative income tax (NIT) in Thailand offers a promising vision for fiscal restructuring. By guaranteeing an income floor through the tax system, NIT could theoretically streamline welfare and mitigate the challenges of an ageing society.
However, transitioning from an ambitious macroeconomic concept to an operational reality requires a pragmatic approach, one that rejects rigid Western economic templates and embraces how the Thai economy actually breathes.
NIT came into the picture late last month after a news report that the Finance Ministry is planning a review of welfare reforms to ensure the benefits target those most in need, minimise duplication across programmes and promote greater participation in the labour force.
The approach is based on the concept of an NIT system: in short, the government is going to bring labourers from the "informal sector" into the tax system.
But NIT differs fundamentally from the existing personal income tax (PIT) system, which is a positive income tax. Under the PIT, individuals whose income exceeds a specified threshold are required to pay taxes. NIT operates in the opposite manner: when an individual's income falls below a specified threshold, that person receives a cash transfer from the government. Key conditions: recipients must be employed and must file a PIT return.
Making NIT viable requires policymakers to revisit what constitutes formal and informal economic activity. Economists often wring their hands over Thailand's massive "informal sector", which accounts for more than 50% of the workforce.
But there is a glaring irony here. In a country where street vendors, motorcycle taxis and open-air markets form the literal backbone of daily life for generations, should this large sector still be called an "informal" economy? Should it be recognised as the true "formal" sector in Thai society?
This embedded socioeconomic structure cannot be reconfigured in a decade or two. Our informal sector possesses its own organic networks and, paradoxically, subsidises the formal sector. The corporate office worker in Bangkok relies heavily on affordable street food provided by "informal" vendors to keep their cost of living manageable. Without this symbiosis, the formal economy's wage structures would collapse under inflationary pressure.
Yet the state's default response is an obsession with "bringing people into the system". This approach ignores a historical reality. Thailand's public data architecture remains notoriously fragmented and incomplete. Trying to force millions of grassroots workers into a flawed, rigid state registry will result in massive blind spots, leaving the most vulnerable families falling through the cracks.
Dynamic economic actors are rational. If the state forces informal workers to register, they will weigh the costs against the benefits. If the promised NIT cash top-up is meagre compared to the administrative burden and potential tax liabilities, people will find more sophisticated ways to evade it.
We must not forget that being "outside the system" in Thailand does not mean being completely abandoned. These workers already access the crown jewel of Thai social safety nets, the Universal Healthcare Scheme (the "30-baht" programme).
If the state offers an NIT system that feels more like a trap than a safety net, the informal sector will remain firmly in the shadows.
Instead of forcibly domesticating a wild yet functioning ecosystem of our "informal sector", the government needs to design "Thai-style fiscal innovations" tailored to our unique constraints.
First, the state must abandon intimidating tax jargon and coercive measures. Instead of demanding complex tax returns, the government should leverage existing digital habits, such as the Pao Tang ecosystem, to create a voluntary, single-tap "Micro-Income Declaration" interface.
The incentive should not just be a minimal cash handout but a bundle of practical perks, such as matching state contributions for voluntary savings or micro-credit guarantees for their businesses.
Second, the fiscal framework must accept reality. Given Thailand's tight fiscal space and high public debt, a massive new welfare budget seems like a fantasy.
Instead of creating a new financial burden, the NIT should be funded by aggressively consolidating Thailand's existing, fragmented cash-handout programmes (such as the State Welfare Card and various uncoordinated subsidies) into a single, centralised pool. By reallocating these overlapping funds, the state can establish a stable income floor for those who truly need it without relying on fresh public borrowing.
Ultimately, an effective NIT cannot be built on the assumption that the Thai economy is broken and needs to look like Europe. By recognising the informal sector as a permanent, vital pillar of our society and by innovating fiscal tools that work with Thai culture rather than against it, the state can finally build an equitable safety net fit for the real Thailand.
Euamporn Phijaisanit, PhD, is Professor of Economics, Thammasat University.
