This chapter examines the combined impact of social security contributions (SSC) and personal income taxes (PIT) on the tax burden on labour income and explores potential reform options in Thailand. It discusses the design of SSC for private sector employees covered under Article 33 of the Social Security Fund. In addition, the chapter evaluates the progressive PIT system and measures the overall tax burden on labour income across wage levels for private sector employees. It also simulates the impact of SSC and PIT reforms on the tax burden on labour income and estimates the revenue impact of these reforms. Finally, the chapter proposes reform options for the public pension system.
Financing Social Protection through General Tax Revenues, Social Security Contributions and Formalisation in Thailand
Abstract
Social security contributions raise little revenue
In 2023, social security contributions (SSC) accounted for only 0.9% of Thailand’s gross domestic product (GDP). This figure is low compared to the OECD average of 8.7% of GDP and the Asia-Pacific region, where SSC generate 1.8% of GDP in revenue on average (Figure 3.1). For example, the Philippines and Viet Nam collect significantly more revenue from SSC than Thailand (2.8% and 5.0% of GDP, respectively).
Total tax revenues and SSC, as a % of GDP, 2023 or latest year
Note: The tax-to-GDP ratio for Japan and the OECD average refer to data from 2022.
Source: OECD (2024[1]), Global Revenue Statistics Database, https://www.oecd.org/en/data/datasets/global-revenue-statistics-database.html.
Employer and employee contribution rates and the contribution income ceiling are low
Thailand’s employer and employee contribution rates for private sector employees are lower than those of its regional peers and cover healthcare, old age, child and unemployment protection. At 12.75%, Thailand has the lowest employer and employee contribution rate for private sector employees compared to 14% in Indonesia and 35% in the People’s Republic of China (hereafter, “China”) (Figure 3.2). The employee and employer each contribute 5% while the government subsidises the Social Security Fund (SSF) by adding a 2.75% matching contribution. The total contribution rate is allocated as follows: 4.5% for healthcare; 7% for old age and child support; and 1.25% for unemployment insurance (Table 3.1). In addition, employers are required to contribute to the Workers’ Compensation Fund between 0.2-1% of the gross wage, depending on the risk level of the activity (capped at THB 20 000 [Thai baht] monthly wage).
Government subsidies to SSC are expensive. Government matching contributions, such as the 2.75% in Thailand, are uncommon among East Asian countries, with Viet Nam being the exception by explicitly subsidising SSC through a 1% contribution to employees’ unemployment insurance. In 2022, this subsidy cost Thailand about THB 44-46 billion, or 0.25-0.27% of GDP.1 The regressive nature of this government subsidy to SSC implies that higher-income workers receive greater subsidies for their SSC benefits. About half of the total government subsidy costs stem from subsidising SSC for private sector workers earning more than THB 14 000 a month. To mitigate this regressivity and reduce the reliance on general revenues for financing contributory schemes, matching contributions could be eliminated for employees in the top income quintile and replaced with higher employer contributions (L’Horty, Martin and Mayer, 2019[2]).
Social security contributions as a % of gross income, 2024
Note: In general, SSC rates cover contributions to pensions, health insurance and unemployment of private sector workers. Workers’ compensation funds for injuries at work, paid by employers, are generally excluded. For China, the 12% housing contributions paid by the employee and the employer are not displayed. In Viet Nam, the government makes a 1% contribution to unemployment insurance.
Source: IBFD (2024[3]), Country Tax Guides.
Note: Contributions are expressed as a percentage of an employee’s gross wage.
Source: Social Security Office of Thailand, in direct communication with the OECD.
The very low SSC ceiling results in a narrow tax base. The contribution ceiling for employee and employer SSC is set at a monthly wage of THB 15 000, which corresponds to 87% of the average wage (AW) in the private sector. This is much lower than the SSC ceiling of other Asian countries (Figure 3.3). Employees and employer contributions are capped at THB 1 500 per month for individuals with earnings above the SSC ceiling. Capped contributions lead to declining effective contribution rates for higher-income earners, thereby narrowing the tax base.
A contribution floor establishes the minimum level of contributions that employees and employers must make to social security. The contribution floor is set at a monthly wage of THB 1 650, which represents 16% of the minimum wage. Consequently, the minimum combined contributions from both employee and employer amount to THB 165 per month, regardless of whether the actual wage is below THB 1 650 per month. As a result, the SSC floor contributes to regressivity for wages below 16% of the minimum wage. However, this situation is likely relevant only to a small number of employees with wages below the floor level (see Figure 3.5 in the following section).
Ceiling for pensionable earnings from public pension schemes, as a % of the average wage, 2020 or latest year
Note: For Thailand, the displayed ceiling is at 87% of the AW for private sector employees in 2024 (based on wage data from May 2024), whereas in 2020, Thailand’s SSC ceiling was at 103% of AW. For the other countries, the ceiling is expressed as a share of the average earnings from 2020.
Source: Adapted from OECD (2022[4]), Pensions at a Glance Asia/Pacific, https://doi.org/10.1787/2c555ff8-en, Table 1.3.
Pensioners are exempt from paying SSC. During their working lives, private sector employees contribute to the SSF and receive health insurance coverage under the SSF. Upon retirement, pensioners cease to be insured under the SSF and transition to coverage through the universal health insurance system, which is provided at no cost.
Revenue from PIT is low
Revenue from PIT in Thailand is low, amounting to 2.0% of GDP, compared to 8.2% of GDP in OECD countries, on average (Figure 3.4). The low PIT revenue is due to generous general PIT allowances and the high level of informality in Thailand, with 52% of the labour force being informal (according to the Informal Employment Survey; see Chapter 4).
Personal income tax is levied at a progressive tax rate schedule on the joint labour and capital income of individual taxpayers (Table 3.2). The second income bracket’s threshold is 71.5% of the AW or 120% of the minimum wage. Personal income tax is levied on both labour and capital income. However, individual taxpayers can either include dividend income in their PIT return or apply the 10% dividend withholding tax rate as a final tax rate. Filing PIT returns is mandatory for taxpayers with annual earned income exceeding THB 120 000 or other annual income exceeding THB 60 000. In 2022, 84% of the PIT returns in Thailand were filed electronically (CIAT et al., 2024[5]).
Revenue from PIT and SSC, as a % of GDP, 2023 or latest year
Note: Data for Japan and OECD average are based on data from 2022; high-income countries (HIC) and upper-middle-income countries (UMIC) averages are based on data from 2021.
Source: OECD (2024[1]), Global Revenue Statistics Database, https://www.oecd.org/en/data/datasets/global-revenue-statistics-database.html.
Note: The average wage of private sector workers in Thailand is reported at THB 17 476 monthly for May 2024. The minimum wage is THB 353 per day in Bangkok in 2024.
Source: IBFD (2024[3]), Country Tax Guides; Social Security Office of Thailand, in direct communication with the OECD.
Tax allowances and deductions narrow the PIT base
Due to generous general tax allowances, the effective bottom PIT rate starts being paid at a relatively high gross income level. The general tax allowance of 50% (or a maximum of THB 100 000) and the single taxpayer allowance (THB 60 000) apply to all wages and salaries and effectively increase the PIT threshold to a gross monthly income of THB 26 214, which corresponds to 1.5 times the average wage or 2.5 times the minimum wage. These very generous tax allowances play a crucial role in narrowing the PIT base (Figure 3.5). As a result:
Workers earning up to a monthly wage of THB 26 214 are completely exempt from PIT, representing about 85% of formal private sector workers.
The second PIT bracket with a marginal tax rate of 5% applies to monthly gross incomes exceeding THB 26 214.
Distribution of Thai formal employees by wage segments and effective marginal PIT rates, 2024
Note: Bars present the total number of workers (in millions) per wage segment (left axis). The dotted line graph presents the effective marginal PIT rates by wage segments (right axis). Vertical lines indicate the bottom and top PIT thresholds as well as the average wage for private sector employees. The bottom effective PIT threshold accounts for the single taxpayer allowance and the general PIT deductions. On the horizontal axis, monthly wage segments are displayed in Thai baht.
Source: Authors’ own elaboration based on Social Security Office of Thailand and Thai Revenue Code.
Generous tax deductions disproportionately benefit high-income earners and narrow the PIT base (Table 3.3). The cap for all retirement and long-term savings, including contributions to provident funds, the Retirement Mutual Fund, or the Government Pension Fund, cannot exceed THB 500 000 (2.5 times the AW). Additional deductions for premiums, interests and donations exist (Table 3.3). Many OECD countries have turned their tax allowances into tax credits, as allowances tend to benefit high-income earners more than low-income earners (OECD, 2006[6]). The primary advantage of tax credits, which are deductible from tax liability, is that their value is independent of income, whereas the value of tax allowances increases with the taxpayer’s marginal tax rate. Thailand could consider eliminating unjustifiable tax deductions and converting the remaining tax deductions into tax credits or lowering the cap for those that remain in place.
The high income thresholds for the top PIT rates result in a low number of taxpayers being subject to them. With eight income brackets, Thailand’s PIT structure has more brackets than that of most peer countries (Figure 3.6 – Panel A). The top PIT rate of 35% applies to annual income above THB 5 million, equivalent to 24 times the AW or 40 times the minimum wage, affecting less than 1% of private sector workers in 2024. Similarly, the top three income brackets, with statutory marginal PIT rates above 25%, apply to only 2.4% of private sector workers. The statutory threshold for the top PIT rate is higher than in most OECD countries, with only Colombia and Mexico having higher thresholds. The effective threshold is even higher when accounting for tax allowances (Figure 3.6 – Panel B). Thailand could consider redesigning its PIT schedule by reducing the number of PIT brackets, restructuring the income thresholds for certain brackets, and lowering the thresholds for the top PIT rates. Such reforms would increase the tax burden on high-income earners and enhance the progressivity of the PIT system. The exact design of the PIT schedule should be informed by an analysis of tax return microdata.
Note: The total amount deducted for all retirement and long-term savings must not exceed THB 500 000 in the same fiscal year. The tax deduction for the Super Savings Fund is only available until fiscal year 2024. ESG Fund = Environmental, Social and Governance Fund.
Source: IBFD (2024[3]), Country Tax Guides.
Note: In Panel B, all OECD countries and Thailand are displayed.
Source: OECD (2024), Personal IncomeTax Database; Social Security Office of Thailand; IBFD (2024[3]), Country Tax Guides.
Individuals can opt to have their capital income taxed under the progressive schedule while benefiting from a tax credit. As mentioned in Chapter 2, taxpayers can include the dividend income in their PIT return and receive a tax credit equal to one-quarter of the dividend income to be applied against their PIT liability. Similar rules apply to interest income from bonds, debentures, savings deposits or loans. Taxpayers can include interest income in their taxable income, subject to the progressive PIT rate schedule and benefit from a tax credit. Finally, capital gains are subject to the progressive rates of the PIT, as there is no specific capital gains tax in Thailand.
Pension income in Thailand is currently exempt from PIT. According to the Revenue Code, pensions received from the SSF are fully tax-exempt, which is an unusual policy given that contributions to the SSF are also exempt. However, even if pensions were subject to taxation, the low replacement rates suggest that most pensions likely remain below the exempt threshold.
The tax system creates a tax-induced incentive for firms to incorporate
In Thailand, the top statutory tax burden on labour income exceeds that on capital income. Labour income is subject to the progressive tax schedule, with a top statutory rate of 35%. In contrast, corporate profits are taxed at a flat rate of 20% (except for small and medium-sized enterprises [SMEs]), and dividends are subject to a 10% withholding tax rate. In most peer countries, the tax rate on labour income exceeds that on capital income (Figure 3.7). These disparities in the tax treatment of labour and capital income incentivise the self-employed to incorporate their businesses.
Top statutory PIT rates and combined corporate income tax (CIT) and dividend withholding tax rates, in %, 2024
Note: The combined tax rate on capital income is calculated as the sum of the CIT rate and the product of the dividend withholding tax rate (WHT) and the untaxed profits share ().
Source: OECD (2024[7]), Corporate Tax Statistics Database, https://www.oecd.org/en/data/datasets/corporate-income-tax-rates-database.html; IBFD (2024[3]), Country Tax Guides.
To mitigate the tax burden on labour income, manager-owners face a tax-induced incentive to incorporate their business and compensate themselves with a low salary, such that they can retain the profits within the company or distribute them as dividends instead. This form of tax arbitrage through closely held companies has been documented in many OECD countries (Zawisza et al., 2024[8]). Manager-owners of closely held corporations are incentivised to minimise their tax liability by paying themselves a low wage and receiving remuneration in the form of dividends, which are taxed at 10%. Alternatively, manager-owners can retain the profits within their business to defer taxation or realise the capital gains upon selling their shares. The choice between distributing profits as dividends or retaining earnings in the company depends on the relative effective tax rates. If the effective tax rate on retained profits is lower than that on newly issued equity, firms have an incentive to retain profits, or vice versa. To mitigate tax arbitrage by manager-owners, Thailand could consider requiring them to pay themselves a “minimum” salary.
The proposed reduction in general PIT allowances may further incentivise incorporation. Currently, the effective tax burden on labour income is relatively low due to numerous deductions. A reform of the PIT system, including the removal of certain PIT deductions, would reinforce incentives to incorporate if the tax treatment of capital income remains unchanged. Better alignment of the tax burden on capital and labour income would necessitate reforms to both the labour and capital income tax rates (e.g. reducing the top marginal PIT rates and increasing the withholding tax rate on dividends).
A tax and benefit model makes it possible to assess the overall tax burden on labour income, encompassing the effects of SSC, PIT and net cash benefits. The Thai tax system is assessed using the OECD’s Taxing Wages model (OECD, 2024[9]). This model aims to illustrate the interaction between PIT and SSC, evaluate how these levies and benefits impact net household incomes, assess the overall tax burden on labour income, and identify weaknesses and tax notches in a country’s labour tax and benefit system. The model also incorporates the impact of cash transfers, such as the State Welfare Card (SWC), a means-tested benefit. The Taxing Wages model is adopted for private sector employees in Thailand (see Box 3.B.1 for the methodology and Box 3.B.2 for Thailand’s parameters in Annex 3.B).
The current tax system is not optimally designed
The tax and benefit model assessment indicates that the tax wedge is regressive for private sector employees across most of the income distribution, primarily due to the low SSC ceiling. The tax wedge measures the difference between total labour costs for the employer and the corresponding net remuneration of the employee. While the benefit system exhibits some progressivity at the lower end of the income distribution due to the SWC cash transfers, the tax system is regressive across most of the income distribution. Specifically, the average SSC costs for employees and employers remain constant at 10% of the tax wedge up to 87% of the AW, after which they begin to decline, reaching 6% of the tax wedge at 250% of the AW (Figure 3.8, top left graph). This reduction in the average tax wedge is attributed to the low SSC ceiling of the THB 15 000 monthly wage. For income exceeding 2.25 times the AW, the average tax wedge starts to rise steadily for single taxpayers, reaching 6.6% at 3 times the AW. The progressivity at the higher end of the income distribution is driven by the PIT schedule.
The SWC benefit results in a near-zero average personal tax rate for low-wage earners, which progressively increases with income. Under the SWC, households with annual incomes below THB 30 000 receive a cash transfer of THB 300 per month, while those earning between THB 30 000 and THB 100 000 per year receive THB 200 per month.2 As a result, the SWC provides an annual cash benefit of THB 3 600 for low-income earners. For individuals with very low earnings (equivalent to 10% of the AW), this benefit translates into a negative tax wedge of 6.6% (Figure 3.8). For those earning 25% of the AW, the SWC cash transfers represent 4.4% of total labour costs, resulting in a total tax wedge of 5.4%.
The tax system provides limited differential treatment for taxpayers with or without children aged 6 to 11 years.3 At the lower end of the income distribution – below 17% of the AW – the average tax wedge is reduced for low-income families with children who receive a cash transfer of up to THB 3 000 per child per year from the Equitable Education Fund. For households earning above 1.5 times the AW, the average tax wedge is only marginally lower for families with two children due to the additional spouse and child tax allowance (Figure 3.8, bottom right graph). At income levels of 50% and 100% of the AW, a married couple with two children faces almost the same average tax wedge as a single taxpayer with no children (9.7% and 8.4%, respectively). At higher income levels, the average tax wedge is slightly lower for the one-earner married couple with two children than the single taxpayer without children (Table 3.4).
When the Child Support Grant (CSG) is considered, the average tax wedge for taxpayers with children up to six years is significantly lower. The CSG provides a monthly cash transfer of THB 800 to low-income families with children up to six years of age. The two right-hand graphs in Figure 3.9 illustrate the tax wedge for families with children under six years, incorporating the impact of the CSG. A one-earner married couple with two children below six years old faces a tax wedge of -12% at 25% of the AW (5.7% without the CSG) and a tax wedge of 1% at half of the AW (9.7% without the CSG). As a result, families receiving the CSG benefit from negative net personal average tax rates up to 2.5 times the AW, indicating that their total benefits exceed their tax liabilities. For a single parent with two children, the tax wedge is equivalent to that of a one-earner married couple with two children across most income levels. However, at higher income levels (specifically at 250% of the average wage), the tax wedge for single parents is marginally higher than for married couples with children (2% compared to 1.7% of gross income, Figure 3.9).
By level of gross earnings expressed as a % of the average wage
Note: The average tax wedge (vertical axis) measures the sum of PIT and employee and employer SSC less SWC cash benefits, measured as a percentage of labour costs. The net personal average tax rate measures the sum of PIT and employee SSC expressed as a percentage of gross wage earnings. On the horizontal axis, shares of the average private sector wage (THB 17 476 per month in May 2024) are displayed, ranging from 20% to 250% of AW. This model considers children aged between 6-11 years and therefore does not include the Child Support Grant. It also does not include PIT deductions for contributions to private savings and retirement funds.
Source: Own elaboration based on OECD Taxing Wages model as found in OECD (2024[9]), Taxing Wages 2024: Tax and Gender through the Lens of the Second Earner, https://doi.org/10.1787/dbcbac85-en.
Note: The average tax wedge measures the sum of PIT and employee’s and employer’s SSC, less cash benefits expressed as a percentage of labour costs. The marginal tax wedge measures that part of an increase in total labour costs that is paid in taxes and SSC, less cash benefits.
Source: Own elaboration based on OECD Taxing Wages model as found in OECD (2024[9]), Taxing Wages 2024: Tax and Gender through the Lens of the Second Earner, https://doi.org/10.1787/dbcbac85-en.
By level of gross earnings expressed as a % of the average wage
Note: The average tax wedge (vertical axis) measures the sum of PIT and employee and employer SSC, less cash benefits expressed as a percentage of labour costs. The net personal average tax rate measures the sum of PIT and employee SSC expressed as a percentage of gross wage earnings. On the horizontal axis, shares of the average private sector wage (THB 17 476 per month in May 2024) are displayed, ranging from 20% to 250% of AW. This model considers children under 6 years old and includes the Child Support Grant, the PIT deductions for contributions to private savings and retirement funds, and the baseline model.
Source: Own elaboration based on OECD Taxing Wages model as found in OECD (2024[9]), Taxing Wages 2024: Tax and Gender through the Lens of the Second Earner, https://doi.org/10.1787/dbcbac85-en.
Personal income tax deductions for contributions to voluntary private pension funds contribute to the regressivity of the PIT system by reducing the tax wedge for high-income earners. Under the Revenue Code, taxpayers can deduct contributions to private pension funds or long-term savings funds up to a maximum of THB 500 000 annually (see Table 3.3 for an overview of the eligible funds). This generous deduction ceiling disproportionately benefits high-income earners. When adjusting the model to incorporate the deduction, the tax wedge for a single taxpayer who deducts the maximum amount for long-term savings (THB 500 000) is reduced to 4.9% at twice the AW (Figure 3.9, top left graph). Consequently, the PIT deduction for contributions to private saving funds further exacerbates the regressivity of the tax system.
The OECD’s Taxing Wages model indicates that marginal tax rates for low-income earners are higher than for middle-income earners. The marginal tax wedge measures the share of an increase in total labour costs that is paid in taxes and SSC minus cash benefits. For a low-income single taxpayer without children (earning up to 87% of the AW), the marginal effective tax rate remains flat at 9.7% of gross earnings (except for a spike at 48% of AW when cash benefits are withdrawn). In contrast, middle-income earners (87% to 150% of the AW) face a marginal tax wedge close to zero, as their income exceeds the SSC ceiling but remains below the effective PIT threshold. An increase in income does not translate into an increase in labour costs for these middle-income earners. For higher-income earners (above 150% of the AW), the marginal effective tax rate increases as the progressive PIT schedule takes effect (Figure 3.10, top left graph). The highest marginal effective tax rate then applies only at 25 times the AW (THB 5 169 000 annually), where the marginal PIT rate reaches 35%.
The withdrawal of SWC benefits creates “spikes” in the tax system and could create disincentives to formalisation. The reduction of the SWC cash transfer from THB 300 to THB 200 per month at 14% of the AW and its complete withdrawal at 48% of the AW creates “spikes” in the tax system, resulting in exceptionally high – near-infinite – marginal tax rates. This effect is observed across all four types of households (Figure 3.10). Consequently, workers could be encouraged to maintain their formal wages just below the income eligibility threshold or remain in informal employment. To maintain eligibility for cash benefits, workers may opt to receive part or all of their wages as undeclared “envelope wages” (i.e. cash payments that are not reported for tax and social security purposes). This allows workers to continue receiving cash benefits. Evidence from other countries indicates that individuals reduce their formal labour supply at the margin to avoid losing cash benefits (Bargain and Doorley, 2017[10]; Levy, 2008[11]). A potential reform measure to address this could be a gradual phasing out of the cash benefit. A more progressive phase-out mechanism would reduce incentives for wage bunching and undeclared cash payments. An alternative measure could be to remove the strict eligibility threshold for the SWC and allow beneficiaries to retain access to benefits even if their income exceeds the limit (e.g. Uruguay suspended the monitoring of the income threshold for family allowance recipients in 2022).
By level of gross earnings expressed as a % of the average wage
Note: The marginal tax wedge (vertical axis) measures that part of an increase in total labour costs that is paid in taxes and SSC, less cash benefits. The net personal marginal tax rate measures the impact of a marginal increase in gross earnings on PIT, SSC and cash benefits. On the horizontal axis, shares of the average private sector wage in May 2024 (THB 17 476 per month in May 2024) are displayed, ranging from 20% to 250% of AW. This model considers children aged between 6-11 years and therefore does not include the Child Support Grant. It also does not include PIT deductions for contributions to private savings and retirement funds.
Source: Own elaboration based on OECD Taxing Wages model as found in OECD (2024[9]), Taxing Wages 2024: Tax and Gender through the Lens of the Second Earner, https://doi.org/10.1787/dbcbac85-en.
The estimated impact of an illustrative reform on average and marginal tax rates
Following the identification of the key tax and benefit notches that contribute to the regressivity of the PIT and SSC system in Thailand, an illustrative reform is proposed, and its potential impact is assessed.
The proposed reform includes the following elements:
Increase the SSC ceiling to 2.5 times the average wage, which is similar to the ceiling of peer countries.
Replace the SSC rate paid by the government with SSC paid by employers, but only for the top income quintile earners.
Lower the 50% general tax allowance to 10% (with the same cap) and abolish the single taxpayer allowance.
Replace the SWC with an unconditional cash transfer with a higher amount for all individuals with income below THB 14 700 per month and a longer phasing out (see Chapter 1).
The proposed reform aims to restore the progressivity of the average tax rate across the income distribution. Figure 3.11 shows the net personal average tax rate for wages ranging from 10% to 250% of the AW under the current system and after the proposed reform. In the current system, the average tax rate decreases for earnings above 85% of the AW. Conversely, under the proposed reform, the average tax rate would increase for higher wage earners, thereby restoring the progressivity of the tax system for all four types of taxpayers. The effect of the reform can be decomposed by the different reform elements.
By level of gross earnings expressed as a % of the average wage
Note: The graph shows a single taxpayer’s net personal average tax rate, measuring the sum of PIT and employee SSC expressed as a percentage of gross wage earnings. On the horizontal axis, shares of the average private sector wage (THB 17 476 per month in May 2024) are displayed, ranging from 10% to 250% of AW. The current system refers to the current tax and benefit system in Thailand. Under the reform scenario, the SSC ceiling is increased to 2.5 times the AW, the general PIT allowance is reduced to 10%, the single taxpayer allowance is removed, and the SWC cash benefit is phased out.
Source: Own elaboration based on OECD Taxing Wages model as found in OECD (2024[9]), Taxing Wages 2024: Tax and Gender through the Lens of the Second Earner, https://doi.org/10.1787/dbcbac85-en.
An increase of the SSC ceiling would result in a higher tax wedge for taxpayers with wages exceeding the current ceiling. Under this scenario, both the personal average tax rate and the tax wedge (including employer SSC) would increase up to the new SSC ceiling set at 2.5 times the AW (Figure 3.12). This reform proposal aligns the SSC ceiling with the levels found in Japan and other Asian peer countries, where SSC ceilings exceed 200% of the AW. In OECD countries, the SSC ceilings generally apply to wages exceeding 167% of the AW (OECD, 2024[9]). Additionally, the 2.75% SSC subsidy currently provided by the Thai government to all private sector employees could be replaced for top-quintile earners by increased employer SSC. This adjustment would raise the tax wedge for high-income earners while providing the government greater fiscal flexibility.
By level of gross earnings expressed as a % of the average wage
Note: The four graphs model the tax wedge decomposition under the proposed reform for the four different types of taxpayers. The average tax wedge (vertical axis) measures the sum of PIT and employee and employer SSC, less cash benefits, expressed as a percentage of labour costs. The net personal average tax rate measures the sum of PIT and employee SSC expressed as a percentage of gross wage earnings. On the horizontal axis, shares of the average private sector wage (THB 17 476 per month in May 2024) are displayed, ranging from 20% to 250% of AW. This model considers children aged between 6-11 years and therefore does not include the Child Support Grant.
Source: Own elaboration based on OECD Taxing Wages model as found in OECD (2024[9]), Taxing Wages 2024: Tax and Gender through the Lens of the Second Earner, https://doi.org/10.1787/dbcbac85-en.
Reducing the general PIT allowance and removing the single taxpayer allowance could reduce the threshold at which the PIT rate effectively applies. This reform element would increase taxable incomes and, consequently, the tax wedges for medium- and higher-income earners (Figure 3.11). Although this measure may introduce some disincentives to formalisation, it is expected to improve both revenue collection and the progressivity of the PIT system.
The proposed gradual phase-out of the cash benefit under the SWC for low-income earners would remove notches in the current tax system. The tax notches observed under the current tax and benefit system, around 14% of the AW and just below 50% of the AW, can be addressed by gradually phasing out the cash benefit, eventually reducing it to zero (Figure 3.11). The design of the unconditional cash transfer proposed in Chapter 1 allows for such a gradual phase-out.
The proposed reform would strengthen the progressivity of the tax system. Under the current tax system, the marginal tax wedge is regressive and near zero for workers earning between 87% and 150% of the AW (Figure 3.13). The proposed reform introduces a steadily increasing marginal tax wedge, ensuring greater progressivity across the income distribution. Increasing the SSC ceiling extends employee and employer SSC up to 2.5 times the AW. Additionally, replacing the SWC with the unconditional cash transfer with a phase-out removes tax notches at the margins. Finally, adjustments to the PIT allowances lower the thresholds for the first PIT brackets and ensure a more gradual increase in marginal tax rates for high-income earners.
By level of gross earnings expressed as a % of the average wage
Note: The graph shows the marginal tax wedge for a single taxpayer, measuring that part of an increase in total labour costs that is paid in taxes and SSC, less cash benefits. On the horizontal axis, shares of the average private sector wage (THB 17 476 per month in May 2024) are displayed, ranging from 10% to 250% of AW. The current system refers to the current tax and benefit system in Thailand. The reform series refers to the illustrative reform, where the SSC ceiling is increased to 2.5 times the AW, the general PIT allowance is reduced to 10%, the single taxpayer allowance is removed, and the SWC cash benefit is phased out.
Source: Own elaboration based on OECD Taxing Wages model as found in OECD (2024[9]), Taxing Wages 2024: Tax and Gender through the Lens of the Second Earner, https://doi.org/10.1787/dbcbac85-en.
Estimated impact on tax revenue
The proposed reform could enhance tax revenue mobilisation by approximately 0.32% of GDP. Using salary distribution data from the Social Security Office (SSO), a back-of-the-envelope calculation estimates the static revenue effects of the proposed reform, assuming no behavioural changes (Table 3.5). The total revenue gain from the proposed reform is estimated at approximately 0.32% of GDP, or THB 55 billion per year. Increasing the SSC ceiling to 250% of the AW (about THB 43 690 per month) is projected to increase revenue by THB 36 billion per year (0.21% of GDP). If the ceiling were entirely removed, the revenue gain would be even higher, reaching 0.61% of GDP. Similarly, a reduction of the general tax allowance from 50% to 10% and a removal of the single taxpayer allowance are estimated to increase tax revenues by THB 25 billion per year (0.15% of GDP). Considering the interaction effects between the SSC and PIT reforms, the projected revenue increase from PIT would be slightly lower at THB 23 billion (0.13% of GDP) because additional SSC can be deducted from taxable income. Taxpayers making higher contributions could deduct these amounts from their taxable income (up to a ceiling of THB 9 000 per year), which reduces their overall tax liability. The gradual phasing out of the cash benefit could be designed to remain nearly revenue neutral, with a projected fiscal impact of THB -4 billion per year (-0.02% of GDP).
Source: OECD calculations based on the wage distribution of formal private sector employees from May 2024, provided by the Social Security Office of Thailand.
The Thai public pension system is fragmented
Thailand administers both contributory and non-contributory public pension schemes, each offering distinct pension benefits (Figure 3.14). As outlined in Chapter 1, non-contributory pension schemes include the Old-Age Allowance (OAA), which provides near-universal coverage (excluding civil servants), and the civil service pension for civil servants. Contributory schemes are classified into defined-benefit (DB) and defined-contribution (DC) schemes. Defined-benefit schemes (e.g. SSF Articles 33 and 39) provide pre-determined income based on a fixed benefit formula. Despite offering more adequate pension benefits, DB schemes face significant challenges in maintaining long-term financial stability due to rapid population ageing. Conversely, DC schemes (e.g. the National Savings Fund and SSF Article 40) calculate benefits based on individual contributions and investment returns. Although DC schemes mitigate financial risk issues, they often do not provide adequate pension benefits for older people.
Note: This graphical illustration only displays income security systems for older persons managed by the Thai government. Additional private pension funds are not displayed.
Source: Adapted from Department of Older Persons (2023[12]), Situation of the Thai Older Persons 2022.
Contributions and benefits vary across Thailand’s contributory pension schemes. Table 3.6 provides an overview of the pension income systems managed by the Thai government, with the exception of provident funds, which operate under private management. Private sector employees contribute to the SSF under Articles 33 and 39, which entitle them to receive a lump sum or a monthly pension. Additionally, they may supplement their pension income by contributing to private provident funds. Civil servants participate in a separate pension system, which includes a non-contributory civil servant pension and mandatory contributions to the Government Pension Fund. Informal workers can make voluntary contributions to either the National Savings Fund or the SSF Article 40 to receive either lump-sum payments or gradual pension payouts upon reaching retirement age (see Chapter 4).
Note: The list includes all major established pension funds in Thailand. Some small-scale pension funds are not listed due to limited membership (e.g. Private Teachers Aid Fund). In Column 1, the type of pension scheme is indicated: DB= defined-benefit scheme; DC= defined-contribution scheme. Column 3 provides the share of contributors in different pension schemes relative to the work population in Thailand in 2019 (ILO et al., 2022[13]). However, if not indicated otherwise, the numbers are an aggregate of active and inactive contributors. The size of accumulated assets in each fund refers to numbers from 2022.
Source: Adapted from ILO et al. (2022[13]), Thailand Social Protection Diagnostic Review: Review of the Pension System in Thailand, https://www.ilo.org/publications/thailand-social-protection-diagnostic-review-review-pension-system-thailand.
The SSF is the largest contributory public pension fund for private sector workers in Thailand, characterised by low contribution rates compared to international standards. Approximately 30% of the Thai population contributes to the compulsory pension scheme under Article 33 (Figure 3.15), while 7% participate in voluntary pension schemes under Articles 39 and 40 (Chapter 4). Pension contributions and benefits vary across these three schemes (Table 3.6 provides a summary, while Table 3.A.1 in Annex 3.A provides a detailed description of social insurance schemes). Under the mandatory scheme (Article 33), employees and employers each contribute 3% of gross earnings to the pension fund and the government supplements this with a 1% contribution. At a total contribution rate of 7% of gross earnings, Thailand has the lowest compulsory pension contribution rate among its regional peers (Figure 3.16).
Percentage of the working-age population insured by old-age pension schemes, by scheme, 2019
Source: Adapted from ILO et al. (2022[13]), Thailand Social Protection Diagnostic Review: Review of the Pension System in Thailand, https://www.ilo.org/publications/thailand-social-protection-diagnostic-review-review-pension-system-thailand.
Social security contribution rates to public pensions, as % of gross wage, by employee, employer and government contribution rates, 2024
Note: Contribution rates refer to public pension funds where contributions are made through mandatory social security contributions. The contribution rates for Thailand refer to the SSF Article 33.
Source: IBFD (2024[3]), Country Tax Guides.
Private sector workers can complement their public pension from the SSF by contributing to private pension schemes. The provident funds are voluntary, employer-sponsored private retirement savings plans, typically offered by large private sector companies, where both employees and employers contribute. Provident funds are managed investment funds, with assets allocated across bonds, stocks and other securities. The pension savings can be withdrawn at retirement age, with investment gains exempt from taxation. However, participation remains low, with less than 5% of the Thai population contributing to provident funds. An alternative supplementary pension could be a consumption-based pension, which directs a fixed percentage of consumer expenditure into an individual’s savings account, as recently approved in Peru (see Box 3.1).
Consumption-based pensions allocate a fixed percentage of consumer purchases to an individual’s retirement savings account, linking everyday spending to pension accumulation. This approach can enhance pension contributions among workers in informal economies and those with irregular incomes, increasing overall coverage. As contributions depend on the consumption level, higher-income individuals are expected to contribute more. However, potential risks include reliance on consumer behaviour, exposure to economic fluctuations, and the challenge of ensuring adequate retirement savings for individuals with lower consumption levels. Given these limitations, consumption-based pensions are best suited as a supplementary pension component within a multi-tiered pension system.
Peru approved the introduction of a consumer-based pension in 2024 as part of broader pension system reforms. Under this initiative, 1% of the value from electronic receipts (with a cap of PEN 700 [Peruvian soles] for each invoice) is allocated to the individual’s pension fund. Annual contributions are further limited to eight tax units, equivalent to PEN 41 200. Additionally, automatic enrolment in the pension system at the age of 18 aims to expand coverage, particularly among young workers.
Source: OECD.
Civil servants are covered by a separate pension system, receiving benefits from the DC Government Pension Fund and the non-contributory civil service pension. Most civil servant retirement benefits are financed by general government revenue, supplemented by employee and government contributions. The Government Pension Fund currently covers 6% of the Thai population (Figure 3.15), with pensions paid out either as a lump sum or through gradual withdrawals. Additionally, civil servants with more than 10 years of service are eligible for a non-contributory civil service pension, which is paid out as a lump sum (10-24 years of service) or as a lifetime pension (for over 25 years of service). As the population ages, the cost of both contributory and non-contributory civil service pensions is projected to increase significantly, reaching 2.4% of GDP by 2060 (ILO et al., 2022[13]).
Since 2023, contributions made to the Government Pension Fund and the private sector provident funds are portable. Workers who transition between public and private sector employment can transfer their pension savings and accumulate contribution years. This reform improves the flexibility and integrity of the Thai pension system, thereby promoting better social protection for workers.
The financial stability of the SSF is at risk
The SSF faces significant challenges related to its long-term financial sustainability due to the increasing number of insured persons nearing retirement. The number of lump-sum pension benefits paid out has steadily increased over time (Figure 3.17). In 2022, 545 151 individuals insured under the SSF who had contributed for fewer than 15 years received a lump-sum old-age pension (Social Security Office of Thailand and Ministry of Labour, 2022[14]). Although the lump-sum payments are typically modest, the rising number of beneficiaries leads to a rapid increase in the SSF’s expenditures and depleting reserves. Similarly, the number of beneficiaries receiving a lifetime pension under Article 33 of the SSF is increasing rapidly, necessitating substantial pension payouts in the coming decades. Without reform, expenditures are expected to exceed revenues, depleting the SSF’s reserves by 2054 (ILO et al., 2022[13]).
Note: Only the old-age lump-sum beneficiaries who have contributed less than 15 years are considered. No information was available on the beneficiaries of lifetime pensions.
Source: OECD calculations based on data from Social Security Office of Thailand and Ministry of Labour (2022[14]), Social Security Statistics 2022, Thailand.
The pay-as-you-go pension scheme of the SSF is not yet mature, and the amount of lifetime pension payouts will continue to increase. Established in 1999, the SSF pension scheme will reach maturity in 2034, when the first cohort of individuals who have contributed to the SSF for the full 35-year period retires and receives their lifetime pensions with a 50% replacement rate. Currently, the maximum replacement rate for a lifetime pension is 35% of the former wage for individuals with 25 years of contributions (since 1999). As a pay-as-you-go pension scheme, the SSF relies on a continuous inflow of contributions from the workforce to finance retirees’ benefits. The anticipated decrease in the workforce and increase in pension payouts pose challenges to this system.
The retirement age is low
Thailand has the lowest retirement age among Asian and OECD countries. Retirement ages in Thailand vary by employment sector: private sector employees retire at 55, while public servants and informal workers retire at 60. The non-contributory old-age pension is also available from age 60 (Table 3.6). The gap between the retirement age for private sector workers (55 years) and life expectancy at birth (80 years) is currently 25 years and is expected to widen as the population ages. In countries with similar demographic characteristics, the retirement age typically exceeds 60 years (Figure 3.18), with higher labour force participation rates among older workers. The average retirement age across OECD countries is currently 64 years, with many governments implementing reforms to raise it further (OECD, 2023[15]).
Retirement ages for a man with a full career from age 22, 2022
Source: Adapted from OECD (2022[4]), Pensions at a Glance Asia/Pacific 2022, https://doi.org/10.1787/2c555ff8-en.
Many people in Asia remain active in the informal sector after retiring from formal employment (OECD/ERIA, 2025[16]). In Thailand, particularly in rural areas, many retirees continue to work informally in the agricultural sector after reaching the official retirement age. A key factor driving this trend is the lack of incentives to increase pension entitlements under formal employment. However, shifting to the informal sector in old age comes with significant drawbacks. Informal workers lose access to employment protection rights when they leave the social security system. Strengthening incentives for older workers to remain in formal employment could help improve retirement security and reduce reliance on informal work.
A gradual increase in the retirement age is necessary to address population ageing and ensure the long-term sustainability of Thailand’s pension system. Raising the retirement age to 60 years, for example, would increase the number of contributors to the SSF while reducing the number of beneficiaries, helping to maintain a balanced revenue-expenditure ratio of the fund in the future. In practice, the retirement age could be increased gradually over time and differ between employment sectors, allowing for earlier retirement for workers in physically demanding occupations. In addition, workers who reach retirement age without completing the required contribution years for a full lifetime pension should have the option to continue working in formal employment to enhance their pension entitlements.
The reference period for benefit calculation has implications for the financial sustainability of the SSF. Thailand is the only country in Asia and the Pacific that calculates lifetime pension benefits solely on wages earned during the last five years of employment. In contrast, most OECD countries consider wages throughout the entire career when determining pension entitlements (OECD, 2023[15]). Only a few OECD countries base pension calculations on partial career earnings (Figure 3.19).
The low SSC ceiling contributes to low replacement rates for high-income earners
Pensioners with fewer than 15 contribution years are eligible only for a lump-sum pension from the SSF, whereas those with more than 15 years of contributions qualify for a lifetime pension. The lump-sum amount depends on the duration of contributions. For contributions made for less than 12 months, the lump sum is limited to the total employee contributions paid. For employees with 1 to 15 years of contributions, the lump sum includes total contributions from the employee, employer, and government, plus accrued interest (Table 3.7). Pensioners with at least 15 years of contributions under Article 33 are entitled to a monthly lifetime pension equivalent to 20% of their average wage over the last five years. For each additional year of contributions beyond 15 years, the replacement rate increases by 1.5% of the former wage, up to a maximum replacement rate of 50%.
Number of years used to compute the reference wage for pension benefits of private sector workers, 2022
Note: Colombia and the Philippines use the last ten and five years, respectively, to calculate the reference wage, but the full career is used if this results in a higher pension.
Source: Adapted from OECD (2022[4]), Pensions at a Glance Asia/Pacific 2022, https://doi.org/10.1787/2c555ff8-en, Figure 1.13. Information on Thailand and the Philippines was added from OECD (2022[4]).
Source: Social Security Office of Thailand.
International comparisons highlight significant variations in retirement age and required contribution years for lifetime pension eligibility, emphasising the importance of long-term contributions in securing adequate retirement benefits. In Thailand, private sector employees who have contributed to Article 33 under the SSF for at least 15 years are entitled to a monthly lifetime pension equivalent to 20% of their average wage over the last 60 months. The minimum contribution years required to receive a lifetime monthly pension vary, ranging from 10 years in Japan and Korea to 15 years in China, Indonesia, Thailand, and Viet Nam (Figure 3.20). The maximum replacement rates for lifetime pensions are attained after 40 years of contributions in China, Japan and Korea. In Thailand, a full lifetime pension benefit with a maximum 50% replacement rate is achieved after 35 years of contributions.
Note: For Indonesia and Viet Nam, no information was found on the number of contribution years to receive a full pension benefit. In Viet Nam, the minimum contribution years to receive a lifetime pension are 15 years for women and 20 years for men.
Source: Social Security Office of Thailand; OECD (2022[4]), Pensions at a Glance Asia/Pacific 2022, https://doi.org/10.1787/2c555ff8-en; OECD (2023[15]), Pensions at a Glance 2023: OECD and G20 Indicators, https://doi.org/10.1787/678055dd-en.
Due to the low contribution ceiling, the replacement rates for high-income earners are significantly lower than those for low-income earners. Employees who began formal employment at age 20, earned THB 15 000 per month for the last five years of work, and contributed for 35 years can retire at 55 with a full pension benefit (50% replacement rate). However, the maximum replacement rate for higher-income earners is lower because contributions are capped at the contribution ceiling (Figure 3.21). An employee earning THB 22 500 per month can reach only a maximum replacement rate of 33.3%. Employees earning above THB 37 500 per month (approximately twice the AW) reach a maximum replacement rate of 20% after 35 contribution years. The low replacement rates for higher-income earners are a direct consequence of the low contribution ceiling (THB 15 000 monthly wage), which limits the amount of contributions and, consequently, the pension benefits available to high-income earners.
The low replacement rates undermine the adequacy goals of the pension system and discourage continued workforce participation. Under the current SSF pension schemes, only a small share of contributors will reach the maximum replacement rate of 50% in the future. Currently, most retirees in Thailand receive a replacement rate below 40% of their former wage, which is the recommended adequate pension income by International Labour Organization (ILO) Convention No. 102. High-income earners face particularly low replacement rates under the SSF pension scheme, as the low contribution ceiling constrains their benefits. While high-income earners may supplement their SSF pension through private savings, such as provident funds, this contradicts the adequacy ambition of the pension system. The low replacement rates also discourage continued formal employment in old age. Raising the pension contribution ceiling would be a first step in addressing these challenges.
Pension contributions for individuals voluntarily insured under SSF Article 39 are also low, resulting in even lower replacement rates. Contributions under Article 39 are calculated based on a fixed income level of THB 4 800 per month, which is below the current minimum wage and represents only 27% of the average wage. Consequently, individuals who fall under Article 39 in their final working years before retirement may receive pension benefits significantly lower than their actual income. This creates a disincentive for self-employment and business creation among older workers, as their potential contributions and benefits are capped much lower than their actual earnings (ILO et al., 2022[13]). To address this issue and enhance the adequacy of benefits for voluntary contributors, Thailand could consider increasing the contribution ceiling under Article 39.
Pension income, as a % of average wage of the last five years, by number of contribution years and for different income levels
Note: The replacement rates (vertical axis) are shown for different lengths of contribution years (horizontal axis). If contributions were paid for less than 15 years, a lump-sum pension is paid based on actual contributions. For employees with more than 15 contribution years, a monthly pension is paid equivalent to 20% of the average wage over the past five years plus 1.5% per every additional contribution year. The pension is capped at 50% of the average former wage but calculated relative to the contribution ceiling at THB 15 000 monthly wage. The replacement rates for three different income scenarios are displayed (see legend), which result in different ceilings of the maximum replacement rates. Constant wage levels are assumed over the work life for the three income scenarios.
Source: Authors, based on information from the Social Security Office of Thailand.
Enhancing the sustainability and adequacy of SSF pension schemes
Thailand could implement comprehensive reforms to strengthen the SSF’s financial sustainability while enhancing pension benefit adequacy. As outlined in the National Plan of Action on the Elderly (2023-2037), key objectives include increasing pension adequacy, developing a multi-tiered pension system, extending the retirement age, promoting continuous employment, and promoting savings for old age (Department of Older Persons, 2023[12]). To achieve these goals, a series of reforms could be considered, including:
Increase the SSC ceiling under Article 33.
Raise the fixed contribution level under Article 39.
Gradually raise the retirement age.
Extend the reference wage period for calculating pension benefits.
Index pension benefits to consumer prices.
Additionally, Thailand could enhance its multi-tier pension system by reducing fragmentation. The non-contributory OAA currently serves as a solid first-tier social pension scheme, but benefit levels need to be increased to meet adequacy standards (see Chapter 1). The SSF, as the largest pension fund in the country, could function as a mandatory second-tier scheme for all workers (excluding civil servants). Other savings funds should serve only a supplementary role. However, the coexistence and lack of portability of contributions and benefits between the SSF and the National Savings Fund currently disadvantage workers transitioning between formal and informal employment (see further discussion in Chapter 4). Addressing these issues will help create a more inclusive and sustainable pension system for Thailand’s ageing population.
Maintain incentives to contribute to the Social Security Fund
Maintain the government matching contributions for lower-income workers and the low SSC rates to promote formalisation.
Strengthen the financing of the SSF
Increase the SSC ceiling under Article 33 to increase revenues and progressivity.
Remove the government contribution (2.75%) for the top quintile of private sector employees (Article 33) and replace it with an additional employer contribution.
Increase the PIT base
Consider lowering the general PIT allowance of 50% of taxable income or THB 100 000 per year (e.g. to 10% of taxable income).
Consider abolishing the single taxpayer allowance (THB 60 000).
Reduce the ceiling of PIT deductions for savings and pension funds (currently THB 500 000), which favours high-income earners.
Revise the PIT schedule and, in particular, the top brackets, based on the analysis of tax return microdata.
Reduce tax incentives for incorporations of self-employed and manager-owners (reduce the income threshold for the top marginal PIT rate, increase the dividend withholding tax rate, increase the “minimum wage” that manager-owners of closely held corporations pay themselves).
Reduce disincentives to formalisation
Replace the SWC cash benefit with an unconditional cash transfer with a phase-out for increasing income levels. Alternatively, income eligibility thresholds could be applied only at the time of initial benefit approval, without revoking benefits from existing recipients once their formal income exceeds the threshold.
Gradually increase the retirement age over time (sustainability).
Increase the SSC ceiling to increase revenue and allow for higher replacement rates among medium-high-income earners (sustainability and adequacy).
Index pension benefits to changes in consumer prices (adequacy).
Consider longer periods than the last five years for the calculation of the reference wage (sustainability).
References
[10] Bargain, O. and K. Doorley (2017), “The effect of social benefits on youth employment”, Journal of Human Resources, Vol. 52/4, pp. 1032-1059, https://doi.org/10.3368/jhr.52.4.1115-7510R.
[5] CIAT et al. (2024), International Survey on Revenue Administration (ISORA), https://data.rafit.org/?sk=ba91013d-3261-42f8-a931-a829a78cb1ec.
[12] Department of Older Persons (2023), Situation of the Thai Older Persons 2022, Amarin Corporations Public Company Limited, Bangkok, https://www.dop.go.th/download/statistics/th1738230377-2563_1.pdf.
[3] IBFD (2024), Country Tax Guides, International Bureau of Fiscal Documentation, Amsterdam, https://research.ibfd.org/#/.
[13] ILO et al. (2022), Thailand Social Protection Diagnostic Review: Review of the Pension System in Thailand, https://www.ilo.org/publications/thailand-social-protection-diagnostic-review-review-pension-system-thailand.
[18] ILO et al. (2022), Thailand Social Protection Diagnostic Review: Summary Report on Child-Sensitive Social Protection in Thailand, UNICEF Thailand, https://www.unicef.org/thailand/media/10806/file/Child-sensitive%20social%20protection%20in%20Thailand%20EN.pdf.
[2] L’Horty, Y., P. Martin and T. Mayer (2019), Baisses de charges : stop ou encore?, Conseil dánalyse économique, Paris, https://cae-eco.fr/Baisses-de-charges-stop-ou-encore.
[11] Levy, S. (2008), Good Intentions, Bad Outcomes: Social Policy, Informality, and Economic Growth in Mexico, Brookings Institution Press, Washington, DC, https://www.brookings.edu/books/good-intentions-bad-outcomes/.
[7] OECD (2024), Corporate Tax Statistics Database, https://www.oecd.org/en/data/datasets/corporate-income-tax-rates-database.html.
[1] OECD (2024), Global Revenue Statistics Database, https://www.oecd.org/en/data/datasets/global-revenue-statistics-database.html.
[9] OECD (2024), Taxing Wages 2024: Tax and Gender through the Lens of the Second Earner, OECD Publishing, Paris, https://doi.org/10.1787/dbcbac85-en.
[15] OECD (2023), Pensions at a Glance 2023: OECD and G20 Indicators, OECD Publishing, Paris, https://doi.org/10.1787/678055dd-en.
[4] OECD (2022), Pensions at a Glance Asia/Pacific 2022, OECD Publishing, Paris, https://doi.org/10.1787/2c555ff8-en.
[6] OECD (2006), Fundamental Reform of Personal Income Tax, OECD Tax Policy Studies, No. 13, OECD Publishing, Paris, https://doi.org/10.1787/9789264025783-en.
[16] OECD/ERIA (2025), Promoting Active Ageing in Southeast Asia, OECD Publishing, Paris, https://doi.org/10.1787/22849f38-en.
[14] Social Security Office of Thailand and Ministry of Labour (2022), Social Security Statistics 2022, Thailand, Social Security Office, Bangkok, Thailand, https://www.sso.go.th/wpr/assets/upload/files_storage/sso_th/1963ca8d01cee28f692a10f200caa1dc.pdf.
[17] World Bank (2021), Towards Social Protection 4.0: An Assessment of Thailand’s Social Protection and Labor Market Systems, https://documents1.worldbank.org/curated/en/637711622718440573/pdf/Towards-Social-Protection-4-0-An-Assessment-of-Thailand-s-Social-Protection-and-Labor-Market-Systems.pdf.
[8] Zawisza, T. et al. (2024), “Tax arbitrage through closely held businesses: Implications for OECD tax systems”, OECD Taxation Working Papers, No. 70, OECD Publishing, Paris, https://doi.org/10.1787/24b4ed4d-en.
Source: Data on SSF beneficiaries and budget provided by SSO, Social Security Fund (SSF) ’s information leaflet; SSO’s information leaflet on the Workmen’s Compensation Fund (WCF); MoPH’s presentation on Thailand’s Public Health Insurance; ILO et al. (ILO et al., 2022[13]), Thailand Social Protection Diagnostic Review; World Bank (2021[17]), Towards Social Protection 4.0: An Assessment of Thailand’s Social Protection and Labor Market Systems; ILO et al. (2022[13]), Thailand Social Protection Diagnostic Review: Review of the Pension System in Thailand.
The Taxing Wages model has been developed to assess countries’ labour tax and benefit systems for different types of taxpayers and their families. The model relies on several assumptions and terminologies, which are described below.
Main assumptions
The household is assumed to have no income source other than from employment and cash benefits. The annual income from employment is assumed to be equal to a given fraction of the average gross wage earnings of these workers.
The taxpayer is assumed to work full-time. Taxpayers with wages below the average wage proxy the situation of a part-time worker.
Any children in the household are assumed to be aged between 6 and 11 inclusive.
Compulsory SSC paid to the general government are treated as tax revenue.
Characteristics of the four types of taxpayers
Single person with no children
Single parent with two children (aged 6-11 years)
One-earner married couple with no children
One-earner married couple with two children (aged 6-11 years)
Terminology
Labour costs is the sum of gross wage earnings, employers’ SSC and payroll taxes.
Net personal average tax rate (tax burden) is the sum of PIT and employee SSC, less cash transfers expressed as a percentage of gross wage earnings.
Tax wedge is the sum of PIT, employee and employer SSC, less cash transfers expressed as a percentage of labour costs.
Marginal tax rate is the share of an increase in gross earnings or total labour costs that is paid in these levies.
Calculations
Personal income taxes are calculated in two steps for all four types of taxpayers: First, the tax allowances applicable to the taxpayer, given his/her family characteristics and income level, are determined. Second, the schedule of tax rates is applied, and the resulting tax liability is reduced by any relevant tax credits.
SSC are calculated as contributions paid by employees and employers to general government or to social security funds and do not include government contributions (as in Thailand).
Marginal tax rates are calculated by considering the impact of a small increase in gross earnings (THB 1) on PIT, SSC and cash benefits.
Source: OECD (2024[9]), “Annex A. Methodology and limitations” in Taxing Wages 2024: Tax and Gender through the Lens of the Second Earner, https://doi.org/10.1787/dbcbac85-en.
The Taxing Wages model for Thailand is based on an average private sector wage of THB 17 476 per month. This average wage figure is calculated based on wage data reported to the SSO in May 2024 and only covers formal private sector employees insured under Article 33 of the Social Security Act. The median wage for a private sector worker in Thailand is lower than the average wage, at about THB 13 000 per month or 74% of the average wage. This is due to the wage distribution, which is skewed to the left in Thailand, with more workers accumulated around lower wages in the wage distribution. The analysis only includes formal private sector workers registered under the SSO, as average wage data for self-employed and informal workers are not available. The situation of pensioners is assessed in the next section of this chapter.
Average wages differ across the peer countries in East Asia and the Pacific. Expressed in US dollars (USD) and purchasing power parity (PPP), annual average wages range from USD 7 289 in Indonesia to USD 80 414 in Singapore. The annual average wage in OECD countries (USD 46 520, PPP) is more than three times the annual average wage in Thailand (USD 14 452, PPP). As average wages and wage distributions vary across countries, comparing Thailand’s Taxing Wages model to other OECD countries is not recommended.
To apply the Taxing Wages model to Thailand, the PIT and SSC schemes and cash benefits are included as shown in Annex Table 3.B.1. For the PIT, the general tax allowance, the personal allowance, the spouse allowance, the child allowance, and the SSC deduction are modelled. The progressive PIT rate schedule is applied, ranging from 5% to 35%, as defined in the Thai Tax Code. For SSC, the employee’s and employer’s SSC are modelled, taking into account the wage floor and wage ceiling. In addition, employers’ contributions to the Workers’ Compensation Fund are included. For cash benefits, only cash transfers to low-income households via the SWC are included in the model.
Note: Entries with a ‘*’ are not included in the baseline model but in extended models.
Source: OECD, information provided by the Thai Revenue Department and the Social Security Office of Thailand (2024).
← 1. The calculations are based on wage distribution data for insured private sector employees in 2022, as published by the SSO (Social Security Office of Thailand and Ministry of Labour, 2022[14]).
← 2. Based on the Taxing Wages model assumptions, all private sector employees below the SWC income threshold receive the SWC benefits. This is not a fully realistic assumption as the SWC suffers from targeting errors (see Chapter 1).
← 3. The basic Taxing Wages model considers children aged between 6-11 years and therefore does not include the Child Support Grant. In addition, all families with children aged 3 to 17 years benefit from additional in-kind benefits such as free education and free meals at school (ILO et al., 2022[18]).