DECENTRALIZATIONinThailand Fiscal Policy Bureau Fiscal Policy Office

Decentralization in Thailand The new constitution 1997 and The Decentralization Act 1999 play a key role in decentralizationThe 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 revenueThe 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.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.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 Public service was transferred to local governments 174 from 245 services the share of local revenue relative to total government revenues has increased from % in 1999 to 23.50% in 2005 the share of local revenue relative to total government revenues has increased from % in 1999 to 23.50% in 2005

Current Situation Local government expenditure ratio has increased from 7.18 (1993) to (2002) compare to government expenditure Local government expenditure ratio has increased from 7.18 (1993) to (2002) compare to government expenditure Financing gaps between revenues and expenditure may increasing as of decentralization process Financing gaps between revenues and expenditure may increasing as of decentralization process No Debt financing has adopted by local governments in Thailand No Debt financing has adopted by local governments in Thailand

Fiscal Public Policy GovernmentGovernment Local AuthoritiesLocal Authorities State EnterprisesState 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 Year Thailand Malaysia The U.K The USA Source : Government Finance Statistic Year Book 1999

Fiscal decentralization Advantages of fiscal decentralization Advantages of fiscal decentralizationEconomic - 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 Advantages of fiscal decentralizationSocial - Enhance democratic system - Improve local leadership

Local Authorities revenues Sources of income 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 TypeGovernment Local Authority Personal Income Tax Cooperate Income Tax Value Added Tax Specific Business Tax Excise Tax Land Registration Fee Custom Duties Automobile Tax (Vehicle Tax) House and Building Tax Land Development Tax Signboard Tax Animal Slaughter Tax - 1/9 - Vat Distributed base on Decentralization Act. Decentralization Act. 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 RevenueRevenue - Not less than 20% of government's revenues in Not less than 35% of government's revenues in 2006

LR/GR LR/GR - Year % - Year % - Year % - Year % - Year % - Year % Fiscal Decentralization Progress

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.Local Revenues target is still 35% of Government Revenues. Extend the year which is set by the National Decentralization Committee.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- rateexpanding taxes-base and increasing taxes- rate increasing efficiency and transparency of collecting taxes systemincreasing efficiency and transparency of collecting taxes system establishing the new taxes such as Environment Tax Actestablishing the new taxes such as Environment Tax Act issuing the Property Tax Actissuing the Property Tax Act

Long Terms local fiscal policies To increase the share of local revenue collected by modernizing the new local taxTo increase the share of local revenue collected by modernizing the new local tax To enhance the local collecting tax systemTo enhance the local collecting tax system

Long Terms local fiscal policies Local Fiscal Discipline must be aware to sustain economic stabilityLocal Fiscal Discipline must be aware to sustain economic stability Short term debt instruments must be carefully prepared as alternatives to fulfill fiscal gapsShort 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)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 , grant include revenue for service responsibilities devolution program Source : Fiscal Policy Bureau Type of Revenue Amount% % % % % 1. Total Authority Revenue (LR) 1.1 Local Collected 1/ 1.2 Surcharge Tax and Shared Tax 2/ 1.3 VAT (distribute based on Decentralization Act) 1.4 Grant 3/ 159, , , , , , , , , , , , , , , , , , , , , , , , , Total Government Revenue772, , , ,063, ,170, % LR to GR

/ / / Amount% % % % % 1. Central Fund 2. Current expenditure 3. Capital expenditure 4. Special expenditure 5. Carry over expenditure 2/ 2, , , , , , , , , , , , , , , , , , , , , , , , , Total85, , , , , 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 Revenue - Expenditure AmountPercentage (Million Baht)(%) I Total local revenue163, Tax revenue87, Local levied tax13, Surcharged and Shared Tax57, VAT (distribute based on Decentralization Act)15, Other Taxes1, Non-Tax Revenue5, Subsidy58, Borrowing1, Accumulated funds and others10, II Central Government Revenue 1/ 850, LR/GR III Total local Expenditure129, Current Expenditure66, Investment expenditure62, Special expenditure IV Central Government Expenditure 2/ 878, LE/GE 14.78

Comparison of local and central government expenditure ( ) Year Central Gov. expenditure/ GDP Local Gov. Expenditure/Central Gov. Expenditure/GDP Central expenditure (1) Million baht GDP (2) Thousand million baht (1)/(2) Ratio Local Gov. Expenditure/ (3) million baht (3)/(1) % (3)/(2) % ,0663, , ,2163, , ,7244, , ,0834, , ,7054, , ,8614, , ,0644, , ,4004, , ,0005, , ,2005, ,

Comparison on Subsidy and Loans of Local Governments (2002) Local Government Amount Percentage (%) (million baht) 1. All Local Authorities163, subsidy58, Loans Municipalities57, subsidy27, Loans1, Provincial Administrative Organization15, subsidy3, Loans Tambon Administrative Organization53, subsidy18, Loans Bangkok Administrative Organization36, subsidy7, Loans Pattaya City subsidy Loans00

Subsidy compare to Central and Local Government Expenditure ( ) Fiscal Year Total Central Gov. Expenditure Total Local Gov. ExpenditureSubsidy Subsidy/ Central Gov. Expenditure Subsidy/Local Gov Expenditure (1)(1)(2)(2)(3)(3)(3) / (1)(3) / (2) (%) ,06640,6709, ,21651,79111, ,72458,35314, ,08361,36318, ,70586,90229, ,86189,37730, ,064100,01338, ,40089,46832, ,000104,81140, ,200133,12058,

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