Tax cuts: For whose benefit?

       Achance to claim higher tax refunds must be a good thing.Viewed in a broader context,however, this sure-fire soundsgood proposal may not be that simple to judge.
       The Office of Insurance Commission (OIC) recently proposed that a larger sum of insurance premium be allowed to claim a deduction in personal income tax. The office hoped to encourage more long-term savings through life-insurance policies.
       The proposal is to allow buyers of life-assurance policies attached to investment or financial instruments to get higher deduction with a limit of 100,000 baht in the first year,200,000 baht for the second year and 500,000 baht for the third year.
       Just last year, the government let lifeinsurance policy holders double their tax refund eligibility to 100,000 baht the request had hung in the air for many years. Insurance companies then rushed to pitch their products to customers,mostly those who already meet the 50,000 baht ceiling under the tax year 2007.
       Let's consider who benefits from the current regulation before examining the new proposal.
       For people who can pay a premium of 100,000 baht a year or around 8,333.33 baht a month, how much would their monthly salary be? Let's assume that this case is for a person free from housing or automobile loans. To be able to comfortably pay the monthly premium, the person may need around 25,000-30,000 baht of net income after contributions to the legally required Social Security Fund and voluntary savings scheme such as a provident fund.
       The question is, how many people in this country are free from servicing housing or automobile loans?
       Taxpayers who have already reached the current ceiling of 100,000 baht annual life-insurance premium will enjoy tax savings ranging from 10,000 baht to 37,000 baht depending on their tax bracket. At this rate, the beneficiaries of this policy are likely to be middle-income earners.
       As for the OIC's new proposal, who will benefit from the policy if the government approves it?
       The first question is: How many people in Thailand can afford to pay 500,000 baht a year for insurance premiums, or 41,666.66 baht a month?
       Although the government and insurance firms keep on touting the advantages of life insurance policies to the country's development, they have not been successful in raising personal savings through this mechanism.Thailand's life insurance business currently accounts for only 3.5% of the country's gross domestic product, much below that of developed markets in which the industry contributes up to 9-10% of their GDP.
       While the OIC maintains that buying life insurance would help policy holders prepare for their retirement, its proposal seems to favour those whose insurance policies will be tied to investment in financial products.
       Also last year, the government approved the proposal to raise the tax refund ceiling for those who invest in longterm equity funds (LTF) and retirement mutual funds (RMF) to 700,000 baht,from 500,000 baht. But it maintained the 15% limit on portion of income to be eligible for this benefit.
       This means that the maximum amount of LTF a person can use to claim a tax refund is capped at 15% of his or her total annual income. For example, a maximum LTF amount a person with 1 million baht income per year should buy to enjoy a maximum tax refund benefit is 150,000 baht.
       This also means that unless the person is super-rich, the raising of the ceiling is likely to mean nothing. To enjoy the 700,000 baht ceiling, a person's annual income must be around 4.66 million baht per year, or 388,888.88 baht a month.
       Again, may I ask, how many taxpayers are earning this much income?
       If these ultra-rich taxpayers manage their tax plan well - utilising the maximum deductions for LTF, RMF and current deduction for insurance premiums - they can save around 555,000 baht of tax annually, based on the highest tax rate of 37%. It's true that this group of people still pays a lot of tax, but the amount that they can save is much higher than the per capita income of Thai people which was estimated at 84,122.83 baht in 2007, according to the National Economic and Social Development Board.
       It appears to me that the latest amendment in tax deductions is aimed only at helping the rich to get richer, as they can save a huge sum of tax. The government's always saying it wants to increase the money in people's pockets, but I wonder whose pockets is it talking about?