1. DECENTRALIZATIONinThailand Fiscal Policy Bureau Fiscal Policy Office

2. 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

3. 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.

4. 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 20.68 % in 1999 to 23.50% in 2005 the share of local revenue relative to total government revenues has increased from 20.68 % in 1999 to 23.50% in 2005

5. Current Situation Local government expenditure ratio has increased from 7.18 (1993) to 15.16 (2002) compare to government expenditure 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 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

6. 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

7. Roles and Functions of Local Authorities Local Authorities ' expenditure /Government's expenditure Year19931994199519961997 Thailand7.998.047.8910.279.89 Malaysia5.145.605.865.489.34 The U.K.28.3728.9728.7927.7228.05 The USA38.5339.2839.8340.7741.70 Source : Government Finance Statistic Year Book 1999

8. 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

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

10. 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

11. 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

12. 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

13. Current Issue on Fiscal Decentralization RevenueRevenue - Not less than 20% of government's revenues in 2001 - Not less than 35% of government's revenues in 2006

14. LR/GR LR/GR - Year200012.63% - Year200120.68% - Year200221.88% - Year200322.19% - Year200422.50% - Year200523.50% Fiscal Decentralization Progress

15. 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.

16. 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

17. 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

18. 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)

19. 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 Revenue 20012002200320042005 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 Revenue772,574.00803,651.00829,495.561,063,600.001,170,000.00 3. % LR to GR20.6821.8822.1922.7523.50

20. 199719981999 1/ 2000 1/ 2001 1/ Amount% % % % % 1. Central Fund 2. Current expenditure 3. Capital expenditure 4. Special expenditure 5. Carry over expenditure 2/ 2,784.5 26,157.5 24,070.1 22,263.4 10,167.61 3.26 30.61 28.17 26.06 11.90 3,085.8 28,856.9 23,511.7 23,404.8 10,517.31 3.45 32.29 26.31 26.19 11.77 3,456.6 33,723.9 19,660.2 32,780.0 10,392.56 3.46 33.72 19.66 32.78 10.39 3,813.28 38,321.69 22,925.52 8,960.47 6,632.82 4.73 47.51 28.42 11.11 8.22 4,129.94 41,167.02 27,050.13 34,406.01 3,363.71 3.75 37.38 24.56 31.25 3.05 Total85,443.1110089,376.51100100,013.2610080,653.78100110,116.81100 Local Authority Expenditure Unit : Million Baht P.S. : 1/ Preliminary Data. 2/ Carry over only Bangkok Metropolitan Administration. Source : Fiscal Policy Bureau

21. Revenue and Expenditure structure between Local Gov. and Central Gov. 2002 Revenue - Expenditure AmountPercentage (Million Baht)(%) I Total local revenue163,708.90100 1. Tax revenue87,404.7053.39 1.1 Local levied tax13,355.108.16 1.2 Surcharged and Shared Tax57,809.0035.31 1.3 VAT (distribute based on Decentralization Act)15,108.809.23 1.4 Other Taxes1,131.800.69 2. Non-Tax Revenue5,681.803.47 3. Subsidy58,382.4035.66 4. Borrowing1,828.901.12 5. Accumulated funds and others10,411.106.36 II Central Government Revenue 1/ 850,692100 LR/GR 19.24 III Total local Expenditure129,788.70100 1. Current Expenditure66,915.7051.56 2. Investment expenditure62,399.7048.08 3. Special expenditure473.30.36 IV Central Government Expenditure 2/ 878,200100 LE/GE 14.78

22. Comparison of local and central government expenditure (1993-2002) 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) % 1993521,0663,17016.4440,6707.811.28 1994579,2163,63515.9351,7918.941.42 1995642,7244,19315.3358,3539.081.39 1996819,0834,62317.7261,3637.491.33 1997931,7054,74019.6686,9029.331.83 1998842,8614,62818.2189,37710.61.93 1999833,0644,61518.05100,01312.012.17 2000765,4004,89115.6589,46811.691.83 2001819,0005,13415.95104,81112.82.04 2002878,2005,45216.11133,12015.162.44

23. Comparison on Subsidy and Loans of Local Governments (2002) Local Government Amount Percentage (%) (million baht) 1. All Local Authorities163,079.00100 - subsidy58,382.4035.8 - Loans287.90.18 1.1 Municipalities57,618.40100 - subsidy27,845.1048.33 - Loans1,183.902.05 1.2 Provincial Administrative Organization15,525.40100 - subsidy3,931.3025.32 - Loans408.22.63 1.3 Tambon Administrative Organization53,416.50100 - subsidy18,746.3035.09 - Loans236.80.77 1.4 Bangkok Administrative Organization36,167.80100 - subsidy7,432.5020.55 - Loans00 1.5 Pattaya City980.9100 - subsidy427.243.55 - Loans00

24. Subsidy compare to Central and Local Government Expenditure (1993-2002) 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) (%) 1993521,06640,6709,1561.7622.51 1994579,21651,79111,7982.0422.78 1995642,72458,35314,7332.2925.25 1996819,08361,36318,2362.2329.72 1997931,70586,90229,5083.1733.96 1998842,86189,37730,6303.6334.27 1999833,064100,01338,1274.5838.12 2000765,40089,46832,2224.2136.02 2001819,000104,81140,3684.9338.51 2002878,200133,12058,3826.6543.86

25. SA-WAD-DEE-CRAB