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DECENTRALIZATION DECENTRALIZATION in in Thailand Thailand Fiscal Policy Bureau Fiscal Policy Office

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Page 1: DECENTRALIZATIONinThailand Fiscal Policy Bureau Fiscal Policy Office

DECENTRALIZATIONDECENTRALIZATIONinin

ThailandThailand

Fiscal Policy BureauFiscal Policy Office

Page 2: DECENTRALIZATIONinThailand Fiscal Policy Bureau Fiscal Policy Office

Decentralization in ThailandDecentralization in Thailand

• The new constitution 1997 and The The new constitution 1997 and The Decentralization Act 1999 play a key role in Decentralization Act 1999 play a key role in decentralizationdecentralization

• The process started in 2001 by devolving The process started in 2001 by devolving public services to Local governments parallel public services to Local governments parallel to allocating revenue to allocating revenue

Page 3: DECENTRALIZATIONinThailand Fiscal Policy Bureau Fiscal Policy Office

Decentralization Goals• Devolving and allocation of public Devolving and allocation of public

service responsibilities among levels of service responsibilities among levels of local government within 10 years.local government within 10 years.

• Increasing the share of local revenue Increasing the share of local revenue relative to total government revenues relative to total government revenues (including intergovernmental transfers) (including intergovernmental transfers) to 20 percent by the end of 2001, and to to 20 percent by the end of 2001, and to 35 percent by the end of 2006. 35 percent by the end of 2006.

Page 4: DECENTRALIZATIONinThailand Fiscal Policy Bureau Fiscal Policy Office

Current SituationCurrent Situation

• Public service was transferred to local Public service was transferred to local governments 174 from 245 servicesgovernments 174 from 245 services

• the share of local revenue relative to total the share of local revenue relative to total government revenuesgovernment revenues has increased from has increased from 20.68 % in 1999 to 23.50% in 200520.68 % in 1999 to 23.50% in 2005

Page 5: DECENTRALIZATIONinThailand Fiscal Policy Bureau Fiscal Policy Office

Current SituationCurrent Situation• Local government expenditure ratio has Local government expenditure ratio has

increased from 7.18 (1993) to 15.16 (2002) increased from 7.18 (1993) to 15.16 (2002) compare to government expenditurecompare to government expenditure

• Financing gaps between revenues and Financing gaps between revenues and expenditure may increasing as of expenditure may increasing as of decentralization processdecentralization process

• No Debt financing has adopted by local No Debt financing has adopted by local governments in Thailand governments in Thailand

Page 6: DECENTRALIZATIONinThailand Fiscal Policy Bureau Fiscal Policy Office

Fiscal Public PolicyFiscal Public Policy• GovernmentGovernment•• Local Authorities Local Authorities •• State EnterprisesState Enterprises

At present, the Government aims to At present, the Government aims to increase the role of Local Authorities in increase the role of Local Authorities in promoting economic development. promoting economic development.

EconomicDevelopment

Page 7: DECENTRALIZATIONinThailand Fiscal Policy Bureau Fiscal Policy Office

Roles and Functions of Local AuthoritiesRoles and Functions of Local AuthoritiesLocal Authorities' expenditure /Government's expenditure

YearYear 19931993 19941994 19951995 19961996 19971997

Thailand 7.99 8.04 7.89 10.27 9.89

Malaysia 5.14 5.60 5.86 5.48 9.34

The U.K. 28.37 28.97 28.79 27.72 28.05

The USA 38.53 39.28 39.83 40.77 41.70

Source : Government Finance Statistic Year Book 1999

Page 8: DECENTRALIZATIONinThailand Fiscal Policy Bureau Fiscal Policy Office

Fiscal decentralizationFiscal decentralization

• • Advantages of fiscal decentralization Advantages of fiscal decentralization

EconomicEconomic

- Enhance local public services to meet local - Enhance local public services to meet local needsneeds

- Incentive for local people to pay local tax- Incentive for local people to pay local tax

- Immune system to protect financial crisis- Immune system to protect financial crisis

Page 9: DECENTRALIZATIONinThailand Fiscal Policy Bureau Fiscal Policy Office

Fiscal decentralization Fiscal decentralization

• • Advantages of fiscal decentralization Advantages of fiscal decentralization

SocialSocial

- Enhance democratic system- Enhance democratic system

- Improve local leadership- Improve local leadership

Page 10: DECENTRALIZATIONinThailand Fiscal Policy Bureau Fiscal Policy Office

Local Authorities revenuesLocal Authorities revenues• • Sources of incomeSources of income

- Local levied Tax- Local levied Tax

- Surcharge Tax- Surcharge Tax

- Shared Tax- Shared Tax

- Non-Tax Revenues ex fee fines and licenses- Non-Tax Revenues ex fee fines and licenses

- Grants- Grants

- Accumulate fund- Accumulate fund

- Loans- Loans

- Others- Others

Page 11: DECENTRALIZATIONinThailand Fiscal Policy Bureau Fiscal Policy Office

Comparison of Local Revenue and Government Revenue

TypeType GovernmentGovernment Local AuthorityLocal Authority

Personal Income TaxPersonal Income Tax

Cooperate Income TaxCooperate Income Tax

Value Added TaxValue Added Tax

Specific Business TaxSpecific Business Tax

Excise TaxExcise Tax

Land Registration FeeLand Registration Fee

Custom DutiesCustom Duties

Automobile Tax (Vehicle Automobile Tax (Vehicle Tax) Tax)

House and Building TaxHouse and Building Tax

Land Development TaxLand Development Tax

Signboard TaxSignboard Tax

Animal Slaughter Tax Animal Slaughter Tax

- 1- 1//99

- Vat Distributed base on - Vat Distributed base on

Decentralization Act.Decentralization Act.

Local Levied Tax

Surcharged Tax and Shared Tax

Page 12: DECENTRALIZATIONinThailand Fiscal Policy Bureau Fiscal Policy Office

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

Page 13: DECENTRALIZATIONinThailand Fiscal Policy Bureau Fiscal Policy Office

Current Issue on Fiscal Current Issue on Fiscal DecentralizationDecentralization

• RevenueRevenue

- Not less than 20% of government's- Not less than 20% of government's revenues in 2001 revenues in 2001

- Not less than 35% of government's- Not less than 35% of government's revenues in 2006 revenues in 2006

Page 14: DECENTRALIZATIONinThailand Fiscal Policy Bureau Fiscal Policy Office

• • LR/GRLR/GR

- Year- Year 20002000 12.63%12.63%

- Year- Year 20012001 20.68%20.68%

- Year- Year 20022002 21.88%21.88%

- Year- Year 20032003 22.19%22.19%

- Year- Year 20042004 22.50%22.50%

- Year- Year 20052005 23.50%23.50%

Fiscal Decentralization ProgressFiscal Decentralization Progress

Page 15: DECENTRALIZATIONinThailand Fiscal Policy Bureau Fiscal Policy Office

Fiscal Decentralization Fiscal Decentralization %LR/GR= 35in the Fiscal Year 2005%LR/GR= 35in the Fiscal Year 2005

The health and educational services have to be The health and educational services have to be transferredtransferred

Amending the Decentralization ActAmending the Decentralization Act• Local Revenues target is still 35% of Government Local Revenues target is still 35% of Government

Revenues.Revenues.• Extend the year which is set by the National Extend the year which is set by the National

Decentralization Committee.Decentralization Committee.

Page 16: DECENTRALIZATIONinThailand Fiscal Policy Bureau Fiscal Policy Office

Fiscal Decentralization Fiscal Decentralization In order or achieve local government In order or achieve local government

revenue to 35% We have plan to,revenue to 35% We have plan to,• expanding taxes-base and increasing taxes-expanding taxes-base and increasing taxes-

raterate• increasing efficiency and transparency of increasing efficiency and transparency of

collecting taxes systemcollecting taxes system• establishing the new taxes such as establishing the new taxes such as

Environment Tax ActEnvironment Tax Act• issuing the Property Tax Actissuing the Property Tax Act

Page 17: DECENTRALIZATIONinThailand Fiscal Policy Bureau Fiscal Policy Office

Long Terms local fiscal policiesLong Terms local fiscal policies

• To increase the share of local revenue To increase the share of local revenue collected by modernizing the new local collected by modernizing the new local taxtax

• To enhance the local collecting tax To enhance the local collecting tax systemsystem

Page 18: DECENTRALIZATIONinThailand Fiscal Policy Bureau Fiscal Policy Office

Long Terms local fiscal policiesLong Terms local fiscal policies

• Local Fiscal Discipline must be aware to Local Fiscal Discipline must be aware to sustain economic stabilitysustain economic stability

• Short term debt instruments must be carefully Short term debt instruments must be carefully prepared as alternatives to fulfill fiscal gaps prepared as alternatives to fulfill fiscal gaps

• Enhance the local fiscal capacity by Enhance the local fiscal capacity by

introducing the Finance Corporation for Local introducing the Finance Corporation for Local Authorities Development (FCLAD)Authorities Development (FCLAD)

Page 19: DECENTRALIZATIONinThailand Fiscal Policy Bureau Fiscal Policy Office

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

Type of Revenue2001 2002 2003 2004 2005

Amount % Amount % Amount % Amount % 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/

159,752.58

17,701.88

55,651.90

12,669.00

73,729.80

100.00

11.08

34.84

7.93

46.15

175,850.29

21,084.47

58,143.52

19,349.00

77,273.30

100.00

11.99

33.07

11.00

43.94

184,066.03

22,258.28

60,217.71

35,504.44

66,085.60

100.00

12.09

32.72

19.29

35.90

241,947.88

24,786.51

82,623.37

43,100.00

91,438.00

100.00

10.24

34.15

17.81

37.79

274,950.00

27,018.96

93,320.34

49,320.00

49,000.00

100.00

9.83

33.94

17.82

38.41

2. Total Government Revenue 772,574.00

803,651.00 829,495.56 1,063,600.00 1,170,000.00

3. % LR to GR 20.68 21.88 22.19 22.75 23.50

Page 20: DECENTRALIZATIONinThailand Fiscal Policy Bureau Fiscal Policy Office

1997 1998 1999 1/ 2000 1/ 2001 1/

Amount % Amount % Amount % Amount % Amount %

1. Central Fund2. Current expenditure3. Capital expenditure4. Special expenditure5. Carry over expenditure 2/

2,784.5 26,157.5 24,070.1 22,263.4 10,167.61

3.2630.6128.1726.0611.90

3,085.8 28,856.9 23,511.7 23,404.8

10,517.31

3.4532.2926.3126.1911.77

3,456.6 33,723.9 19,660.2 32,780.010,392.56

3.4633.7219.6632.7810.39

3,813.2838,321.6922,925.528,960.476,632.82

4.7347.5128.4211.118.22

4,129.9441,167.0227,050.1334,406.013,363.71

3.7537.3824.5631.253.05

Total 85,443.11 100 89,376.51 100 100,013.26 100 80,653.78 100 110,116.81 100

Local Authority Expenditure

Unit : Million Baht

P.S. :1/ Preliminary Data.2/ Carry over only Bangkok Metropolitan Administration.

Source : Fiscal Policy Bureau

Page 21: DECENTRALIZATIONinThailand Fiscal Policy Bureau Fiscal Policy Office

Revenue and Expenditure structure between Local Revenue and Expenditure structure between Local Gov. and Central Gov. 2002Gov. and Central Gov. 2002

Revenue - ExpenditureAmount Percentage

(Million Baht) (%)

I  Total local revenue 163,708.90 100

1. Tax revenue 87,404.70 53.39

     1.1 Local levied tax 13,355.10 8.16

     1.2 Surcharged and Shared Tax 57,809.00 35.31

     1.3 VAT (distribute based on Decentralization Act) 15,108.80 9.23

     1.4 Other Taxes 1,131.80 0.69

2. Non-Tax Revenue 5,681.80 3.47

3. Subsidy 58,382.40 35.66

4. Borrowing 1,828.90 1.12

5. Accumulated funds and others 10,411.10 6.36

II Central Government Revenue 1/ 850,692 100

   LR/GR   19.24

III Total local Expenditure 129,788.70 100

      1. Current Expenditure 66,915.70 51.56

      2. Investment expenditure 62,399.70 48.08

      3. Special expenditure 473.3 0.36

IV Central Government Expenditure 2/ 878,200 100

      LE/GE   14.78

Page 22: DECENTRALIZATIONinThailand Fiscal Policy Bureau Fiscal Policy Office

Comparison of local and central government Comparison of local and central government expenditure expenditure ((1993-20021993-2002))

Year

Central Gov. expenditure/ GDPLocal 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)

%

1993 521,066 3,170 16.44 40,670 7.81 1.28

1994 579,216 3,635 15.93 51,791 8.94 1.42

1995 642,724 4,193 15.33 58,353 9.08 1.39

1996 819,083 4,623 17.72 61,363 7.49 1.33

1997 931,705 4,740 19.66 86,902 9.33 1.83

1998 842,861 4,628 18.21 89,377 10.6 1.93

1999 833,064 4,615 18.05 100,013 12.01 2.17

2000 765,400 4,891 15.65 89,468 11.69 1.83

2001 819,000 5,134 15.95 104,811 12.8 2.04

2002 878,200 5,452 16.11 133,120 15.16 2.44

Page 23: DECENTRALIZATIONinThailand Fiscal Policy Bureau Fiscal Policy Office

Comparison on Subsidy and Loans of Local Comparison on Subsidy and Loans of Local Governments Governments ((20022002))

Local Government

Amount

Percentage (%)

(million baht)

1.  All Local Authorities 163,079.00 100

     - subsidy 58,382.40 35.8

     - Loans 287.9 0.18

     1.1  Municipalities 57,618.40 100

            - subsidy 27,845.10 48.33

            - Loans 1,183.90 2.05

     1.2  Provincial Administrative Organization 15,525.40 100

            - subsidy 3,931.30 25.32

            - Loans 408.2 2.63

     1.3  Tambon Administrative Organization 53,416.50 100

            - subsidy 18,746.30 35.09

            - Loans 236.8 0.77

     1.4  Bangkok Administrative Organization 36,167.80 100

            - subsidy 7,432.50 20.55

            - Loans 0 0

     1.5 Pattaya City 980.9 100

            - subsidy 427.2 43.55

            - Loans 0 0

Page 24: DECENTRALIZATIONinThailand Fiscal Policy Bureau Fiscal Policy Office

Subsidy compare to Central and Local Subsidy compare to Central and Local Government Expenditure Government Expenditure ((1993-20021993-2002))

Fiscal Year

Total Central Gov. Expenditure

Total Local Gov.Expenditure Subsidy

Subsidy/Central Gov.Expenditure

Subsidy/Local Gov Expenditure

         

(1) (2) (3) (3) / (1) (3) / (2)

      (%) (%)

1993 521,066 40,670 9,156 1.76 22.51

1994 579,216 51,791 11,798 2.04 22.78

1995 642,724 58,353 14,733 2.29 25.25

1996 819,083 61,363 18,236 2.23 29.72

1997 931,705 86,902 29,508 3.17 33.96

1998 842,861 89,377 30,630 3.63 34.27

1999 833,064 100,013 38,127 4.58 38.12

2000 765,400 89,468 32,222 4.21 36.02

2001 819,000 104,811 40,368 4.93 38.51

2002 878,200 133,120 58,382 6.65 43.86

Page 25: DECENTRALIZATIONinThailand Fiscal Policy Bureau Fiscal Policy Office

SA-WAD-DEE-CRABSA-WAD-DEE-CRAB