This chapter discusses policy options to enhance the coverage of social insurance among informal sector workers in Thailand. First, it outlines the main characteristics of informal workers in Thailand. It then analyses existing social insurance schemes targeted at the self-employed. Finally, the chapter proposes the design of a presumptive tax regime for micro-businesses that would allow the self-employed to access social insurance.
Financing Social Protection through General Tax Revenues, Social Security Contributions and Formalisation in Thailand
Abstract
Despite showing a declining trend, informality in Thailand is widespread, affecting more than half of the workforce. Although informality has declined by 10 percentage points over the last decade, it remains high (OECD, 2023[1]). Estimates from the Informal Employment Survey (IES) indicate that approximately 21 million workers, or 52% of Thailand’s total labour force, were in informal employment in 2023 with women being slightly less exposed than men (50% vs 53%) (see Box 4.1 for a description of the definition used).
The Informal Employment Survey (IES) data offers a comprehensive national overview of informal employment in Thailand. In the survey, workers are classified as formal if they meet the following criteria:
Employers, self-employed individuals, unpaid family workers, or members of co-operatives who are members of the social security scheme under Articles 33, 39, or 40. These workers may also be protected under specific labour laws, such as the Private School Act, the Homeworkers Protection Act, regulations under the Labour Protection Act, or the Protection of Labour for agricultural workers.
Government employees – such as civil servants, temporary staff, and foreign organisation employees – who receive paid sick leave and are covered by the social security system.
Private sector employees who receive protections under specific labour laws, are entitled to paid leave and social security benefits, or have maintained continuous employment with the same employer for at least three months.
Informal workers are workers not covered by social security schemes or specific labour laws. Private employees are considered informal if they lack paid leave entitlements, are excluded from social security schemes, do not have stable employment, and are not protected by labour regulations.
The IES definition of formal employment is not fully aligned with the definition applied by the International Labour Organization (ILO), and even if a worker is considered formal according to the above criteria, their social protection coverage might be limited. For instance, workers under Article 40 contribute to social security, but their entitlements are limited compared to workers insured under Article 33. Article 39 members are classified as formal because they contribute to social security but are currently not working in the formal sector (see Chapter 3). Similarly, private sector employees with no social security but with continuous employment with the same employer are classified as formal workers, which departs from the ILO definition of formal employment (ILO, 2003[2]).
Source: OECD based on IES.
Informality is more common among workers with lower levels of education and those working in smaller-sized companies. According to IES data, informality is more common among workers with lower levels of education, those employed in the agricultural sector – which accounts for over half of the country’s informal workforce – and those working in micro and small enterprises. In fact, 85% of informal workers are employed in businesses with fewer than ten employees, compared to just 32% of formal workers. In urban areas, the wholesale and retail trade sector, which includes a large number of street vendors, serves as a major source of informal employment (Poonsab, Vanek and Carré, 2019[3]). The coronavirus (COVID19) pandemic confirmed the vulnerability of workers in the informal sector, as many workers were excluded from pandemic relief measures (Komin et al., 2024[4]).
Self-employed workers (own-account workers and employers) are disproportionately affected by informality, making up the majority of informal employment in Thailand. They account for 65% of all informal workers – 73% of men and 56% of women. Contributing family workers make up another third, while employees represent only 6% of the informal workforce (Figure 4.1). Women in informal employment are significantly more likely than men to be contributing family workers (40% vs. 21%) and significantly less likely to be own-account workers (54% vs. 68%).
Distribution of informal workers by employment status
Note: Own-account workers are self-employed workers without employees.
Source: IES.
Informality among workers is mainly concentrated in lower-income groups. IES data show that 74% of informal employees are concentrated in the lowest wage quintile. The average monthly wage of informal workers is about THB 7 700 (Thai baht), which is less than half the wage of formal employees. Among own-account workers, informal workers earn approximately 1.5 times less than their formal counterparts, as reflected in the higher ratio of individual labour earnings between the two groups. However, there is also a significant proportion of informal workers (about 20%) who earn more than 150% of the median wage (OECD, 2024[5]).
Social evasion reduces the social protection coverage of workers
Non-compliance with social security contributions (SSC) is widespread, even among registered businesses. Informality is also prevalent within registered businesses, with nearly 5 million individuals working informally, which represents about one-quarter of all informal workers. According to IES data, 55% of these informal workers in registered businesses are own-account workers, while 30% are contributing family workers. This highlights the need for stronger enforcement measures to enhance social protection coverage, even within the formal sector.
Social evasion poses a significant barrier to Thailand’s social protection system and its financial sustainability, particularly in terms of contributions to the Social Security Fund (SSF). For private sector employees, social evasion occurs if employers do not register their employees or do not pay the full amount of required SSC. Under the Thai Social Security Act, employers are required to register new employees within 30 days of their start date. Employers’ compliance could be enhanced through a combination of soft measures, such as sending reminders, and hard measures, including penalties for those who do not register their employees.
Envelope wages – a practice where employers pay part of workers’ wages in cash – represent another form of social evasion. By under-reporting wages, both employers and employees contribute less to the SSF, which directly weakens its financial base. For employees, this arrangement may result in higher immediate net earnings due to reduced contributions, while still receiving basic insurance benefits as they are registered with a lower wage. The employer also benefits from lower contributions for their employees. However, the reduced contributions ultimately lead to lower benefits for employees.
Informal workers can contribute to voluntary saving schemes, but participation is limited
Article 40 of Thailand’s SSF aims to extend social insurance coverage to individuals outside the formal sector. The scheme targets self-employed workers but is optional, and workers can choose from three monthly contribution levels: THB 70, THB 100, and THB 300. Each contribution tier provides a different level of benefits and coverage of risks (Table 4.A.1 in 0). Specifically, Option 1 (THB 70 per month) provides sickness, disability and survivors’ benefits; Option 2 (THB 100 per month) adds a lump-sum old-age benefit to the benefits under Option 1; Option 3 (THB 300 per month) further expands the benefits of Option 2 by including a child allowance. Healthcare is not included in any of the Article 40 options because all individuals benefit from the Universal Health Care scheme. Informal workers, who often lack experience with formal registration, can apply through a variety of channels, including the Social Security Offices (SSO), the SSO hotline, different online and mobile applications, the Bank for Agriculture and Agricultural Cooperatives, and Seven-Eleven stores. Similarly, contributions can be made conveniently through various banks, service units and mobile payment platforms. This multi-channel approach is designed to reach a wide range of informal workers with diverse backgrounds and habits, promoting broader inclusion.
Social security coverage among the self-employed remains low. While employees in the private sector have a relatively high level of social insurance coverage, participation in the voluntary schemes under Articles 39 and 40 is limited (see Table 3.A.1 in Annex 3.A.). Only 14% of employers, 8% of own-account workers, and 5% of unpaid family workers are members of the SSF under Articles 39 and 40 (Figure 4.2). These figures reveal critical gaps in social protection coverage and underline the urgent need for targeted measures to address informality among vulnerable groups, particularly the self-employed and contributing family workers.
Social insurance coverage under Articles 33, 39 and 40 by employment status, 2023
Note: Private sector and government employees are eligible to contribute under Article 33, whereas own-account workers, employers and unpaid family workers are eligible to contribute under Article 40, and possibly Article 39, in cases of previous participation in Article 33 (see Table 3.A.1 in Annex 3.A for a description of the different schemes). Some workers may benefit from other social protection programmes, such as a scheme for domestic workers or private school teachers, which are not considered here.
Source: IES, 2023.
Low and irregular contributions result in very low benefits under Article 40. Estimates from the ILO indicate that even under optimistic scenarios, a long-term contributor to Article 40 would receive a monthly old-age allowance of only THB 203-229 (approximately 7% of the 2023 poverty line) under Option 2 and THB 608-688 (22% of the poverty line) under Option 3 (ILO et al., 2022[6]). In addition, participation in Option 3 remains limited, with most members opting for the first two options. Furthermore, due to the high prevalence of irregular contributions, members who do not contribute regularly may be entitled to significantly lower pensions than those estimated in this study, or they may not qualify for any benefits at all.
Participation in Article 40 saw a temporary spike during the COVID-19 pandemic, largely due to emergency cash transfers. Article 40 participation increased sharply in 2021 due to the THB 5 000 emergency cash transfer offered to participants in 29 of Thailand’s 77 provinces. In addition, Article 40 contribution rates were reduced by 40% from July 2021 to July 2022. However, when the temporary measures ended, the number of contributors quickly returned to pre-pandemic levels. After one year, only 13% of those who had joined Article 40 during the pandemic remained active contributors. In contrast, the retention rate for those who joined the scheme before 2021, when no incentives were available, was 43% (Olken et al., 2024[7]). This highlights the challenges of maintaining long-term engagement in voluntary social protection schemes, particularly when short-term incentives are no longer available.
Limited participation in the standard Article 40 scheme reflects the low perceived value of the benefits and a possible lack of trust in government institutions. Research suggests the main barrier to Article 40 participation is the low attractiveness of the scheme’s benefits (Olken et al., 2024[7]). The sharp decline in the number of active contributors after the 2021 increase suggests that many workers did not find the long-term benefits sufficient to justify continuing to contribute. In addition, Options 2 and 3 in Article 40, which include retirement savings, show low take-up. This suggests that workers either prioritise immediate benefits over long-term social protection or are reluctant to entrust their savings to the government for an extended period.
The perception that Article 40 does not provide certain types of benefits, combined with limited awareness of entitlements, has contributed to reduced participation in the scheme. For example, a significant proportion of informal workers interviewed in the study by Komin et al. (2024[4]) expressed dissatisfaction with the lack of maternity income compensation, a benefit only available under Article 33 (see Table 3.A.1 in Annex 3.A). Many self-employed workers also lack a clear understanding of how the system works. This knowledge gap often results in contributors not claiming the benefits they are entitled to. Without a clear understanding of the benefits and claims process, informal workers may view contributions as a one-sided cost, which can lead some to stop making payments and withdraw from the programme. In addition, delays in accessing benefits, particularly sickness and injury income compensation, have further reduced the scheme’s effectiveness. Members have also reported a lack of information about their contribution history and how it affects their eligibility for benefits, particularly in cases where payments have been suspended over time. This lack of transparency undermines confidence in the scheme and discourages long-term participation among informal workers.
The coexistence of the National Savings Fund (NSF) and the SSF creates competition and confusion among members, which may undermine confidence and reduce participation. The NSF is a voluntary supplementary savings scheme designed to support retirement savings for individuals not covered by mandatory social security schemes. While the NSF plays a critical role in filling a gap in Thailand’s social protection system by providing retirement savings for informal workers, its overlap with the SSF has led to misunderstandings about eligibility. In practice, individuals enrolled in Article 40 (Options 2 and 3) are required to formally withdraw from the scheme before they can contribute to the NSF. Conversely, as Option 1 of Article 40 does not provide for pension benefits, members may enrol in the NSF while maintaining their membership under Article 40 Option 1. In contrast, NSF members transitioning to Article 40 need only stop contributing to the NSF and can continue to receive NSF benefits in addition to Article 40 pension benefits (provided they participate in Options 2 or 3) when they retire. Komin et al. (2024[4]) emphasise the need for clearer communication and better co-ordination between the two systems to ensure that participants fully understand their rights and obligations. This would help build confidence and trust in the system and encourage broader enrolment.
Improved communication is essential to increase participation and retention of workers under Article 40 (Box 4.2). Tailored campaigns and information channels could be developed to better reach the target group (e.g. street vendors). Broader information-sharing efforts could involve workers’ organisations, which are well placed to engage with informal workers and ensure that contributors receive clear information on their contributions and entitlements. Simple mechanisms, such as SMS (short message service) alerts and notifications, could be used to regularly inform members of their contribution status and the benefits to which they are entitled. In addition to explaining entitlements to existing contributors and simplifying the claims process, proactive engagement with non-members will be essential to expand coverage among the target group.
Behavioural science evidence has been used by policymakers around the world to design better programmes and improve implementation, providing useful lessons on how to increase participation and contribution rates for pension and savings schemes. Behavioural science draws on insights from psychology, cognitive and neuroscience, and organisational and group behaviour to better understand human behaviour. While traditional economic models of human decision making suggest that people seamlessly consider all their options and choose to do what is best for them, they often do not predict what actually happens in complex decisions such as retirement savings.
Several successful examples show how taking cognitive biases into account in policy design can facilitate the adaptation of schemes at low cost, provided that these interventions are rigorously tested and adapted to the specific country and policy context:
In Kenya, informal workers’ contributions to a voluntary savings scheme doubled after participants were given a gold-coloured coin inscribed with numbers on it to help them track their weekly deposits. The tangibility of the coin helped to remind people to save and produced better results than a financial matching scheme.
In Bolivia, Peru and the Philippines, targeted text message reminders helped low-income bank clients who had recently signed up for commitment savings accounts to meet their savings goals. Messages that mentioned both savings goals and financial incentives were particularly effective.
Source: OECD (2018[8]), Multi-dimensional Review of Thailand: Volume 1. Initial Assessment, https://doi.org/10.1787/9789264293311-en.
Low participation in voluntary saving schemes highlights the challenges of extending social protection to informal workers. Thailand’s struggle to expand social insurance coverage for the self-employed, with Article 40 and the NSF, highlights the limitations of using voluntary savings schemes. These limitations largely stem from an excessive focus on the short-term (myopia) as well as a lack of trust in the government regarding the management of long-term savings. This mirrors international experiences, where voluntary schemes often struggle to effectively broaden coverage and engage informal workers (ILO et al., 2022[6]).
A tiered approach could be considered, requiring larger micro-businesses and their workers to participate in a simplified presumptive tax regime (PTR). While voluntary savings schemes often face challenges in expanding coverage, it is equally unlikely that mandatory contributions will be effectively enforced among the low-income self-employed. Given the challenges of enforcing mandatory participation among all informal workers, introducing a tiered system could be envisaged. Larger micro-enterprises and their workers could be required to participate in a simplified PTR that integrates social insurance coverage and offers more attractive benefits than those available under Article 40 (as discussed in the next section). Article 40 could remain a voluntary savings scheme for low-income self-employed workers.
A review of the legislated exemptions from Article 33 contributions is essential to address coverage gaps. The current mandatory scheme (Article 33) for private sector employees excludes certain categories of workers, such as domestic workers and seasonal employees, despite the existence of clear employer-employee relationships. These legal exclusions contribute to gaps in social security coverage, as the workers concerned are limited to participating in social security under Article 40, which provides a much lower level of social protection. From an employer’s perspective, these exemptions create incentives to use non-standard contracts to minimise compulsory contributions and, therefore, the costs for employers to hire workers. This undermines both the financing and the inclusiveness of the system. To mitigate these risks, the definition of exempt categories (e.g. seasonal and temporary workers) should be clarified with precise criteria to prevent misuse and abuse. Legal loopholes that allow businesses to avoid or evade social security obligations should be closed (see Box 4.3 for examples from other countries). Moreover, the evolving nature of work – in particular, the rise of digital platform workers in the gig economy – underscores the need for a comprehensive review and revision of the legislation to reflect modern employment relationships, in line with ILO recommendations (ILO et al., 2022[6]).
Strategies for extending contributory schemes to the self-employed and informal workers can be divided into three groups (Table 4.1). First, self-employed and informal workers can be included in existing compulsory social security schemes. An integrated social security system for salaried and self-employed workers offers the advantage of enhancing worker mobility while minimising administrative costs and reducing system fragmentation. The starting point is often to include easy-to-reach workers with clear employer-employee relationships by extending existing schemes. Governments often provide targeted subsidies to improve social security coverage for low-income workers. Second, voluntary contribution schemes can serve as an entry point for informal workers to join the social security system. However, there is scarce evidence of successful examples of voluntary schemes. Third, specific contribution schemes can be designed for particular sectors or occupations to extend coverage to particular informal groups of workers. While additional sectoral or occupational schemes can contribute to extending coverage, they can undermine the universal scheme and lead to fragmentation.
Source: OECD based on Nguyen and da Cunha (2019[9]), Extension of Social Security to Workers in Informal Employment in the ASEAN Region, https://www.ilo.org/publications/extension-social-protection-workers-informal-employment-asean-region; Ghorpade, Restrepo and Castellanos (2024[10]), Social Protection and Labor Market Policies for the Informally Employed: A Review of Evidence from Low-and Middle-Income Countries, http://documents.worldbank.org/curated/en/099032024211014718.
Introducing a PTR in Thailand could simplify taxation of small businesses and extend social insurance coverage to the self-employed and workers in micro-enterprises. PTRs are designed to simplify tax compliance for micro and small enterprises. By replacing complex income-based tax systems with simplified mechanisms, such as lump-sum taxes or turnover-based assessments, PTRs aim to reduce administrative burdens for tax authorities and compliance costs for taxpayers (Mas-Montserrat et al., 2023[11]). Implementing a PTR in Thailand could contribute to bringing informal businesses into the tax system.
The main design features of the proposed PTR for Thailand are found in Figure 4.3. Designed as a system that includes SSC as part of the tax liability, the PTR could play a key role in expanding social insurance coverage to the self-employed and employees in micro-businesses. To encourage firms to pay tax under the PTR, the regime could offer social security benefits that are more attractive than those currently provided under Article 40. The latter scheme would remain accessible only to micro-entrepreneurs with incomes below the minimum eligibility threshold of the PTR.
This section draws significantly on a list of 50 best practices in the design of PTRs developed by Mas-Montserrat et al. (2023[11]) and international experiences (Mas-Montserrat, Colin and Brys, 2024[12]).
Note: According to Thailand’s Office of Small and Medium Enterprises Promotion, micro-businesses are defined as businesses with a turnover not exceeding THB 1.8 million and with no more than five employees.
Source: Framework adapted from Mas-Montserrat et al. (2023[11]), “The design of presumptive tax regimes”, https://doi.org/10.1787/141239bb-en.
The PTR could target self-employed workers and unincorporated micro-businesses
A PTR in Thailand could target micro-businesses and self-employed workers, i.e. small businesses facing challenges in maintaining complete and up-to-date books. Highly profitable sectors and businesses with the capacity to comply with standard tax rules should be excluded from the PTR. In particular, liberal professions, such as lawyers, doctors, and information technology consultants, are traditionally ineligible for a PTR, as they typically have higher earnings and education, making it easier for them to comply with the standard tax regime. The specific level of SSC for self-employed professionals regime remains a topic for further analysis. The exclusion list should be based on clear criteria, including profitability, ability to comply with complex requirements, clarity for businesses, and ease of enforcement for tax authorities. It is recommended that incorporated businesses, which are subject to the corporate income tax (CIT), remain outside the scope of Thailand’s PTR to prevent tax avoidance and maintain the integrity of the standard tax regime.
Eligibility criteria are essential to ensure that non-targeted businesses are excluded
Eligibility criteria must be designed to exclude non-targeted businesses from access to the PTR. An important and common criterion is a turnover threshold above which businesses should not be eligible for the regime. This threshold can vary across sectors to reflect differences in profitability and to ensure that only businesses with limited financial capacity benefit from the simplified tax regime (Thuronyi, 2004[13]).
Setting the threshold too high could undermine the standard tax system by attracting too many businesses into the PTR. Setting an appropriate turnover threshold helps prevent larger businesses from opting into the PTR, where they would benefit from lower tax rates even though they are able to comply with the standard tax system. The value added tax (VAT) registration threshold is a natural maximum turnover eligibility threshold for the PTR, which coincides with the threshold below which businesses are defined as micro-businesses in Thailand, according to the Office of Small and Medium Enterprises Promotion. Finally, the threshold could be indexed to inflation or revised in case of persistent, significant inflation to avoid eligible micro-businesses becoming ineligible for the PTR over time.
Setting an appropriate maximum turnover threshold is crucial to strike the right balance between inclusiveness and transition incentives. The eligibility threshold for the PTR should not be set too high, as this would allow businesses with sufficient financial and administrative capacity to remain under the PTR rather than transition to the standard tax system. Best practice suggests aligning the PTR threshold with the VAT registration threshold (Figure 4.4.). However, the current VAT registration threshold is relatively high, at THB 1.8 million (about USD 165 000 [US dollars], PPP [purchasing power parity]). Thailand could consider lowering its VAT registration threshold and aligning the PTR eligibility criteria to ensure a more coherent transition path.
Maximum turnover for unincorporated businesses to be eligible for a PTR in USD PPP
Note: Thailand’s VAT registration threshold, currently at THB 1.8 million (approximately USD 165 000, PPP), is included as a potential threshold.
Source: Adapted from Mas-Montserrat, Colin and Brys (2024[12]), “The design of presumptive tax regimes in selected countries”, https://doi.org/10.1787/58b6103c-en.
Additional criteria can reinforce targeting but should remain simple to enforce. In addition to turnover thresholds, additional eligibility conditions can include limitations on the physical characteristics of the business, constraints on the number of economic activities, or conditions related to personal assets. These additional criteria may help distinguish micro-businesses and self-employed workers from larger businesses. The balance between simplicity and enforcement capacity is key to an effective eligibility framework. While additional criteria can improve targeting, they should not impose excessive administrative burdens on taxpayers or the tax administration.
A minimum threshold in the PTR would exclude the smallest businesses, which would reduce compliance burdens for both taxpayers and tax authorities. Among 31 African countries with a PTR, 13 countries set a minimum threshold (Hoy et al., 2024[14]). Whether Thailand should adopt a minimum threshold requires a thorough analysis of several key factors, including the distribution of micro-businesses and the capacity of the tax administration.
The minimum threshold could be set close to the personal income tax (PIT) and CIT exemption thresholds. Setting a minimum PTR threshold lower than the PIT exemption threshold may be ineffective in attracting businesses, as unincorporated micro-businesses are likely to opt for the PIT if this choice results in zero tax liability. As the PIT is levied on taxable personal income and the PTR levies a tax on gross receipts, their tax bases are distinct, and both taxes cannot be compared directly. The difference between taxable income and turnover will increase with tax-deductible business expenses. The distribution of businesses and their business expenses may impact the minimum threshold that could be set. It should also be noted that while the statutory PIT exemption threshold is at THB 150 000 taxable income, the effective PIT exemption threshold, as indicated in Chapter 3, is around THB 300 000 taxable income, which coincides with the CIT exemption threshold defined under the small and medium-sized enterprise (SME) regime (Figure 4.5). An alternative could involve setting the minimum threshold at THB 300 000. However, survey data on the distribution of informal businesses by turnover, alongside administrative data from CIT returns, would be essential to determine the most adequate threshold. Article 40 could then remain available for micro-entrepreneurs with turnover below the minimum PTR threshold.
Note: The thresholds are shown in Thai bahts and in USD using end of 2024 nominal exchange rates.
Source: Authors’ own elaboration.
The PTR would be available exclusively to small unincorporated businesses. Under the current system, business income is taxed under the PIT for unincorporated businesses or the CIT for incorporated businesses. The PTR would be designed specifically for unincorporated businesses below the VAT registration threshold, and the tax would serve as a substitute for the PIT and the VAT. Social insurance contributions should be mandatory for all self-employed individuals with a turnover exceeding the minimum threshold. Unincorporated businesses with turnover above the minimum threshold could opt to be taxed under either the PTR or PIT. Incorporated businesses, by contrast, would remain subject to the CIT and its progressive tax rate structure: profits below THB 300 000 are zero-rated, profits between THB 300 000 and THB 3 million are taxed at a 15% statutory tax rate, and profits exceeding THB 3 million are taxed at a rate of 20%. Additionally, businesses that do not file tax returns, keep books, or submit required documents are currently taxed at a 5% rate applied on turnover. Note that this turnover tax for non-compliant incorporated businesses does not constitute a PTR that is targeted to reduce compliance costs.
Effective monitoring is essential to prevent currently incorporated businesses from restructuring and opting into the PTR for tax optimisation purposes. Above the threshold of THB 300 000, incorporated businesses that qualify as SMEs are subject to a reduced CIT rate of 15% (up to THB 3 million taxable profits). Implementing the PTR may have an unintended side effect: some incorporated businesses (especially those that are highly profitable) may be incentivised to restructure as unincorporated businesses to benefit from the simplified requirements and reduced tax liability under the PTR. Monitoring will also be necessary to ensure that firms within the PTR transition to the general regime as they grow, rather than bunching just below the maximum turnover threshold.
Advantages and disadvantages of different alternatives for determining tax liability
The choice of tax structure affects compliance, fairness and economic incentives. Under a PTR, the tax liability can be a lump-sum amount of tax or be determined by levying a flat tax rate or a progressive tax rate schedule on gross receipts, each of which has advantages and disadvantages.
Lump-sum taxation offers simplicity and transparency but raises equity concerns. A lump-sum amount set too high could impose an excessive tax burden on smaller businesses. In contrast, a low lump-sum amount would result in a disproportionately low tax burden on larger micro-businesses within the PTR. In addition, larger businesses benefitting from a low lump-sum tax may have limited incentives to grow and transition into the standard tax system, thereby weakening broader formalisation objectives. If lump-sum taxation is chosen, the turnover range for which the PTR is introduced should be kept narrow to ensure that businesses within the PTR are relatively similar in size, thereby reducing inequities among taxpayers.
A flat-rate PTR system would offer a better balance between equity and simplicity but requires strong enforcement to mitigate under-reporting of sales. Thailand could adopt a flat-rate PTR system to ensure that businesses are taxed in proportion to their deemed income. However, turnover-based taxation poses a risk of under-reporting, especially in the absence of robust monitoring mechanisms. Progressive tax rates better align the tax burden with financial capacity, mitigating equity concerns, but further increase complexity and the risk of under-reporting. If Thailand adopts a flat-rate PTR regime but faces short-term challenges in addressing the risks of under-reporting sales, it could initially implement a lump-sum tax before gradually moving to turnover-based taxation as the capacity of the tax administration improves. In addition, if lowering the VAT threshold proves challenging, Thailand could explore a two-tiered PTR structure that distinguishes between smaller and slightly larger micro-businesses. The first tier could apply to own-account workers below a low turnover threshold and levy a lump-sum amount of tax, while a second tier could apply to businesses with higher turnover but still eligible for the PTR (e.g. below THB 1.8 million).
Differentiating tax rates between sectors can enhance fairness but may also create additional risks. While turnover is a simple tax base that requires only simplified accounting and bookkeeping, it does not reflect profitability. As a result, highly profitable businesses will face a lower effective tax burden than less profitable businesses with similar sales. Sectoral differentiation of tax rates can improve alignment between tax liability and profitability, but these measures introduce additional complexity and monitoring challenges. Sector-specific rates may encourage businesses to attempt to reclassify their activities in order to benefit from lower rates. A limited number of differentiated rates can strike a balance between fairness and simplicity. One common approach is to distinguish between commercial activities (e.g. retail and trade) and service activities, as the latter typically have higher profit margins due to lower operating costs.
Social insurance coverage provided under the PTR should be appealing
Defining the scope and adequacy of benefits under the PTR is critical to ensuring its attractiveness. As mentioned above, Thailand is advised to move towards mandatory SSC above the minimum eligibility threshold of the PTR. Self-employed workers or micro-enterprises with few employees have little incentive to comply with tax obligations if they perceive it as a financial cost that does not yield, possibly a contingent benefit, and enforcement remains weak. To support the scheme’s attractiveness, and compliance, the social protection benefits included in the PTR should be more generous than the benefits offered under Article 40 (e.g. they could include compensation in case of sickness or injury and maternity benefits). This would also limit the risk that the smallest businesses bunch below the minimum turnover threshold, as they would receive an additional incentive to grow and participate in the PTR. More generous benefits would reduce the protection gap between employees and the self-employed. Basic SSC should be compulsory for the self-employed, regardless of whether they choose to be taxed under the PTR or the PIT. PTRs can include some types of mandatory social protection while offering other benefits on a voluntary basis. For example, in Uruguay, PTR (Monotributo) taxpayers can contribute voluntarily to health insurance coverage for other family members. Determining the appropriate types and levels of benefits requires further consultation with stakeholders, as well as data and actuarial analysis.
A phased implementation of social protection could facilitate the transition towards mandatory SSC. Gradualism allows businesses and tax administrations to adjust gradually, reducing compliance resistance and administrative challenges. For example, Peru has adopted a phased approach to integrating independent workers into its social insurance schemes. Currently, voluntary contributions will become mandatory in 2028, starting at 2% of monthly earnings and increasing by 1 percentage point every two years until reaching 5% in 2034. A similar approach could ease the compliance burden for businesses in Thailand. This gradual reform strategy would help mitigate the risk of abrupt transitions and ensure that businesses adapt gradually without facing undue financial pressure. The migration of current Article 40 contributors to the PTR should be carefully considered.
A flat tax rate that includes SSC could encourage the formalisation of workers. A single tax rate that incorporates both income tax and SSC would simplify obligations and reduce administrative costs. PTR compliance could provide social security coverage not only for the owner but also for all employees. An alternative could be to compute the PTR liability as the sum of a flat tax rate levied on turnover and a lump-sum SSC amount applied per employee. However, this approach may discourage formal employment as businesses seek to reduce their tax burden. For this reason, applying a single tax rate to a firm’s turnover that covers both tax and social security obligations may be preferable. As turnover is generally correlated with the number of workers, larger eligible businesses would incur higher PTR liabilities and thus contribute more to the financing of social security for their larger number of employees. Thailand could use the number of workers reported by businesses to detect abuse or under-reporting of turnover. By comparing the number of workers declared by businesses with peers with similar turnover in the same sector, tax authorities could detect outliers and target enforcement efforts more effectively.
Clear procedures would need to be established to govern the collection and distribution of revenue between agencies, preferably administered by the Ministry of Finance in co-operation with the Social Security Office. To implement this approach, it would be essential to determine how to separate tax revenue from social contributions. It is important to note that revenue from the social security contribution component under the PTR is not expected to be substantial. To put this in context, if all current informal workers were formalised under Article 33, revenues from SSC would increase by 0.3% of gross domestic product (GDP), which is a significantly upper-bound estimate of the potential revenues from SSC under the PTR (see Annex 4.B).
This tax design is not intended to replace the standard tax and SSC regime but rather to facilitate the transition to it. The PTR, including its SSC component, should not be seen as a substitute for the standard tax and SSC system. Instead, it aims to facilitate formalisation and ensure that social insurance coverage is expanded across workers with the expectation that businesses will eventually transition to the standard tax system as they grow. Over time, when the tax administration’s enforcement capacity is further strengthened, social insurance contributions should become compulsory for all the self-employed.
Leveraging non-tax incentives to encourage registration
Facilitating access to credit can further incentivise businesses to join the PTR. Lack of access to credit is frequently cited as a key constraint to business development in surveys such as the World Bank Enterprise Surveys (World Bank, 2024[15]). Registration in the PTR can make businesses more credible and eligible for financial support from banks and microfinance institutions. This argument should be well communicated to taxpayers (and currently informal, unregistered businesses) to incentivise compliance. This incentive could be strengthened through government-backed initiatives, such as guaranteed credit lines for businesses that comply with PTR requirements. Guaranteeing a certain amount of credit would make financial institutions more prone to lend to PTR taxpayers, which could act as an important driver for their formalisation. Such measures would increase participation in the PTR and encourage business growth, which would facilitate the transition to the standard tax system and generate higher tax revenues over time.
Non-tax incentives, such as business training and accounting programmes, can also support compliance and formalisation. Training in business management, accounting and financial planning can help small businesses improve their operations, develop, and prepare for integration into the standard tax system. These capacity-building initiatives could be designed in co-operation with business associations and financial institutions. To encourage participation, tax administrations could offer temporary reductions in tax liabilities for businesses that complete training, thereby combining business development with financial incentives for formalisation.
Effective monitoring and regulation are essential to prevent non-compliance
A well-administered PTR should prioritise simplicity and accessibility to encourage compliance. Compared to the standard tax system, administrative requirements – such as registration, filing and payment processes – should be streamlined and simplified, with limited reporting frequency and accessible digital and physical platforms (e.g. mobile applications). In addition, establishing one-stop shops could consolidate tax and social security obligations, thereby minimising interactions with multiple public authorities and reducing administrative burdens.
Tax authorities should monitor the PTR regime to ensure compliance and prevent abuse. Given the potentially large number of small taxpayers under the PTR, monitoring costs for the tax administration could be significant. To enhance efficiency, Thailand could establish a dedicated unit within the Ministry of Finance to monitor PTR compliance and analyse broader trends, such as taxpayer participation and sector profitability, to inform policy adjustments. Making business licences conditional on PTR compliance would ensure that only registered and tax-compliant businesses operate legally, facilitating the monitoring process and incentivising compliance. In addition, enforcement should include proportionate penalties to deter tax evasion without imposing excessive burdens on small businesses.
A key enforcement challenge is to ensure that businesses do not under-report their turnover. Larger businesses may under-report turnover below the maximum PTR threshold in order to benefit from simplified procedures and lower tax rates under the PTR, while smaller businesses may under-report their turnover to remain below the minimum PTR threshold and avoid their tax liabilities. Detecting significant bunching of firms just below these thresholds can signal potential non-compliance and guide targeted enforcement action.
Additional indicators can improve enforcement and reduce the risk of misreporting. To enhance the reliability of turnover as a tax base, tax authorities can cross-check information using complementary indicators such as the number of employees, business premises size, years of operation, and input consumption. Collaboration with service providers can facilitate digital access to data on water and electricity use, allowing authorities to detect discrepancies and improve compliance at a lower cost than indicators that require on-site monitoring. However, reliance on such indicators must avoid penalising new businesses, which may incur higher input costs before reaching profitability or discouraging business investment.
The PTR should facilitate a smooth transition to the standard tax system
The PTR should be designed as a transitional mechanism that facilitates integration into the standard tax system. Rather than being a permanent solution, the PTR should serve as an intermediate step towards full compliance with the standard tax and social security systems. Therefore, the PTR design must consider the eventual migration of businesses into the standard regime and ensure a smooth transition without creating disincentives for growth.
Limiting the tax differential between the PTR and the standard regime is essential to avoid tax-induced incentives to transition into the standard tax regime. A major challenge for migration to the standard tax system is the potential tax burden differential. If the difference in tax burden between the PTR and the standard tax regime is too high, businesses may prefer to under-report turnover or artificially split their activities in order to remain in the PTR. It is, therefore, essential to limit this difference. In addition, the administrative burden of filing tax returns and keeping accounts may further discourage the transition. Temporary relief measures, such as reduced tax rates or simplified compliance requirements for newly migrating businesses, could help to mitigate these challenges.
Comparing tax rates across regimes is essential to assess the financial implications of moving from the PTR to the standard tax system. Figure 4.6 shows the tax rates on profits under PIT, CIT and the PTR for a turnover of THB 1.8 million, which corresponds to the current VAT registration threshold, subject to various cost-share assumptions. Tax liability under the PTR is applied as a flat tax rate levied on turnover, set at illustrative rates of 2% for the retail sector and 5% for the services sector. However, further analysis is required to determine the most appropriate rates. Under this framework, the PTR would be financially advantageous for service activities provided the cost share does not exceed 51%, and for commerce activities provided, the cost share does not exceed 69% (see the intersection of the PTR series with the PIT series in Figure 4.6). While the CIT rate is flat at 15% for small businesses in scope, the effective tax rate for PIT taxpayers decreases as the share of costs increases due to the progressive PIT rate schedule that applies to the resulting taxable income. While PIT and CIT tax rates do not include SSC, which would need to be paid in addition, the observed tax differentials at typical profit share levels remain moderate.
Effective tax rates on profits for a business with a turnover of THB 1.8 million (current VAT registration threshold) across different cost margin levels (horizontal axis)
Note: On the horizontal axis, increasing expenses are displayed, i.e. the costs a business incurs relative to a fixed turnover of THB 1.8 million. When expenses are zero, the profit is therefore THB 1.8 million and the cost share 0%. In contrast, when expenses reach THB 1.8 million, the cost share rises to 100%. On the vertical axis, tax rates on profits are shown. The CIT rate is fixed at 15%, and the progressive marginal PIT rate schedule (5-35%) applies to the varying taxable income. Two tax rates on turnover are considered for the hypothetical PTR: 2% (for commerce) and 5% (for services). The resulting tax rate on profit is determined by applying the corresponding cost share. It should be noted that the PTR tax rates include SSC, while SSC would need to be added to PIT and CIT tax rates. The overall tax rate differentials between the PTR and income taxes would then be higher than displayed in this figure.
Source: Authors’ own elaboration.
Additional measures can facilitate the migration of businesses to the standard tax system. Thailand’s tax administration could provide targeted support to businesses leaving the PTR, such as assistance with accounting and tax filing. Eligibility for the PTR could also be limited in time to ensure that businesses eventually move to the standard tax system after a certain period of time (e.g. five to eight years). However, this approach requires strong enforcement mechanisms to prevent businesses from artificially closing and re-opening in order to remain within the PTR.
Introduce a presumptive regime
Introduce a turnover-based regime that targets self-employed workers and micro-entrepreneurs and covers income taxes and social security contributions. To do so:
Offer social security benefits that are more attractive than those currently provided under Article 40 to micro-entrepreneurs and workers in micro-businesses.
Consider setting the minimum eligibility threshold close to the PIT and CIT exemption thresholds.
Consider setting the maximum turnover eligibility threshold at the VAT registration threshold.
Consider additional eligibility criteria to ensure that non-targeted businesses are excluded but are simple to enforce.
Establish clear procedures to govern the collection and distribution of revenue between agencies administered by the Ministry of Finance in co-operation with the Social Security Office.
Update Article 40
Maintain Article 40 as a voluntary savings scheme only for low-income, self-employed workers.
Eliminate or reduce exemptions from Article 33
Consider eliminating or reducing the legislated exemptions from Article 33 contributions.
References
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Source: Social Security Fund, https://www.sso.go.th/wpr/.
Extending social insurance coverage would have a limited impact in terms of revenue if all the self-employed remained covered under Article 40. Revenue from contributions of the almost 20 million self-employed and contributing family workers who are not insured with the SSF could amount to 0.4% of GDP if all workers opted for the highest contributions under Article 40 of the SSF (i.e. THB 300 per month). Annex Table 4.B.1 provides estimates of the net revenue from SSC that would be raised if the informal employment within the informal sector were reduced by 10 percentage points (resulting in increased contributions to Article 40). While expanding social protection coverage through voluntary savings schemes is preferable to the current situation, where a large portion of the population remains uninsured, the low contribution amounts indicate that this approach will not substantially contribute to financing social protection. Moreover, the voluntary nature of the scheme makes it unlikely that a significant expansion in coverage can be achieved.
Revenue from workers’ contributions and subsidy from top-up contributions from the government associated with a 10-percentage point reduction in the share of informal self-employed workers and unpaid family workers
Note: The estimates rely on the number of self-employed and unpaid family workers not being members of the SSF in 2023, based on IES data. Monthly contributions from workers under Article 40 are set at THB 70, THB 100, and THB 300 for Options 1, 2, and 3, respectively, with an associated top-up contribution from the government of THB 30, THB 50, and THB 150, respectively.
Source: Authors’ own elaboration.
Including current informal workers under Article 33 would increase SSC revenues by 0.3% of GDP. Revenue from employee and employer SSC from private sector employees who are not members of the SSF would represent approximately THB 50 billion (THB 25 billion in employer SSC and THB 25 billion in employee SSC), or 0.3% of GDP in 2023, while the associated subsidy (due to government matching contributions) would amount to 0.08% of GDP. Note that this estimate does not take into account the revenue impact of reducing envelope wages or other forms of partial informality.