Thailand is preparing significant reforms to its personal income tax (PIT) deduction system, expected to apply from the 2026 tax year. The main objective is to close a widening revenue gap, modernize tax administration, and make the system fairer by curbing excessively generous deductions that allow many higher earners to legally pay little or no tax.
This article explains what is changing, why it is happening, who will be affected, and how to prepare.
1. Why the Thai Government Is Limiting Personal Income Tax Deductions
1.1 Revenue Shortfalls in 2025
For the 2025 fiscal year (October 2024–September 2025), Thailand’s three main revenue-collecting agencies all missed their targets:
- Revenue Department:
Collected approximately 2.01 trillion baht, about 1.3% below its 2.04 trillion baht target. - Excise Department:
Collected around 489 billion baht, roughly 11.8% below the 554 billion baht target. - Customs Department:
Collected about 104 billion baht, around 7.1% below its 112 billion baht target.
In total, these shortfalls amount to roughly 100 billion baht, or about 3.7% of their combined target.
Officials have attributed these gaps to several trends:
- Greater use of tax-deductible activities and promotions
- Rapid expansion of e‑commerce, outpacing existing enforcement and tracking tools
- Lower excise revenue from the promotion of electric vehicles (EVs) and other subsidized products
- Use of special regimes and duty-free zones by corporations
1.2 A Narrow and Unequal Tax Base
Thailand’s personal income tax system has a very narrow base:
- Only about 4.2 million people—roughly 6% of the population—actually pay personal income tax.
- Around 52% of workers are in informal employment and largely outside the tax net.
- An estimated 73% of working‑age Thais with income do not file tax returns, and only about 10% of those who do file actually pay tax after deductions.
The result is a structurally weak tax base, even though the statutory PIT rates (5–35%) are comparable to many peers.
1.3 Rising Debt and Fiscal Pressure
According to recent international assessments, Thailand’s public debt is approaching 65% of GDP and is on course to near the 70% legal ceiling in the coming years. At the same time, the country faces:
- Higher healthcare and pension costs due to an aging population
- Infrastructure and climate-related spending needs
- Social protection and education investment requirements
With limited scope to borrow more, the government is under pressure to raise revenue more efficiently and broaden the tax base.
2. Why Target Personal Income Tax Instead of VAT?
2.1 VAT: Politically Difficult to Increase
Thailand’s statutory VAT rate is 10%, but it has been temporarily reduced to 7% since 1997 through successive extensions. The latest royal decree maintains the 7% rate until 1 October 2026, after which the rate could revert to 10% unless another extension is granted.
During 2024–2025, the Ministry of Finance and the Fiscal Policy Office considered raising VAT above 7% to close the revenue gap. The rationale:
- Thailand’s VAT-to-GDP ratio is estimated to be about 2.9 percentage points below the average of non‑fuel‑exporting emerging markets.
However, proposals for a VAT hike encountered strong opposition:
- Concerns about higher cost of living for lower‑income households
- Fears that it could damage tourism competitiveness
- Business groups warning of weaker domestic demand
Consequently, increasing VAT has been politically sidelined, at least in the near term.
2.2 PIT Reform Seen as “Fairer”
In contrast, reforming personal income tax deductions:
- Targets those with higher and more stable incomes
- Preserves the progressive nature of PIT
- Avoids direct regressive impact on low‑income households that consume most of their income
Officials have therefore framed deduction reforms as a “fairer and more targeted” path to strengthening revenue compared to a broad-based VAT increase.
3. The Current Personal Income Tax Deduction System
3.1 Key Allowances and Deductions (2025 Rules)
Under the existing system, Thai residents can claim a wide range of allowances and deductions, including:
Personal and Family Allowances
- Personal allowance: 60,000 THB
- Spouse allowance (if dependent): 60,000 THB
- Child allowance: 30,000 THB per child, generally up to three children
- Parental care allowance: up to 30,000–60,000 THB per parent (subject to conditions)
Insurance and Health
- Life insurance premiums: up to 100,000 THB
- Certain health insurance premiums: additional deduction within set limits
Housing
- Mortgage interest on residential property: up to 100,000 THB
Retirement and Investment
- Retirement Mutual Fund (RMF) contributions: up to 500,000 THB, subject to caps relative to income
- Super Savings Fund (SSF) investments: up to 30% of income, capped at 200,000–300,000 THB depending on scheme
- Provident Fund and Social Security contributions: deductible within specified limits
- Environmental, Social and Governance (ESG) fund investments: temporary deduction, up to around 300,000 THB, available through December 2026 in specific schemes
Donations and Education
- Charitable donations: generally up to 10% of taxable income (after other deductions)
- Certain school fees and education‑related expenses for children: capped per child
3.2 The “Stacking” Problem
Because these deductions can be combined, some taxpayers—typically higher earners—can legally reduce their taxable income by over 1 million THB per year. For example:
- RMF contributions: 500,000 THB
- SSF investments: 200,000–300,000 THB
- Life insurance: 100,000 THB
- Mortgage interest: 100,000 THB
- Personal + spouse + child + parental allowances: 150,000–250,000+ THB
In aggregate, this can significantly reduce or even eliminate PIT liability for individuals with substantial incomes.
Finance ministry officials describe the current deduction landscape as “scattered and unclear”, noting that many incentives were added piecemeal over time, without a cohesive framework or cap.
4. What Exactly Is Being Proposed?
4.1 Deduction Ceiling Under Study
The central reform under discussion is the introduction of a single cap on total deductible amounts that a taxpayer can claim in a year. Instead of allowing unlimited stacking of RMF, SSF, insurance, donations, and allowances, the government is considering a global ceiling (a single maximum amount) for certain categories of deductions.
Key characteristics as currently understood:
- A global cap on specified deductions (likely covering retirement, insurance, and some investment deductions)
- Aimed primarily at individuals claiming very high deduction totals
- The exact cap amount has not yet been announced
There is also discussion that some items—such as mandatory social security contributions—could remain outside the cap. Final design, however, is still being modeled.
4.2 What Is Not Yet Final
As of late December 2025, the following details remain uncertain:
- The exact numerical ceiling (e.g., 500,000 THB, 700,000 THB, 1,000,000 THB)
- Whether different ceilings might apply to different income brackets
- Which deductions will be fully subject to the cap, and which will be partially or fully exempt
- Whether current promotional incentives (e.g., ESG funds) will be retained, merged, or phased out
Officials have emphasized that they are still conducting impact assessments and simulations and consulting relevant stakeholders.
5. Timeline: When Will the Changes Take Effect?
5.1 Income Years and Filing Years
The government has provided clarity on timing so taxpayers can plan:
- Income earned in 2025
- Not affected by the new deduction rules.
- Returns filed in early 2026 will continue under current deduction rules.
- Income earned in 2026
- Expected to be affected by the reformed deduction framework.
- Returns filed in early 2027 will likely apply the new rules, assuming the legislative process is completed as planned.
In other words:
No change for the tax return you file in 2026 (for 2025 income).
Changes are expected for the tax return you file in 2027 (for 2026 income).
5.2 Policy Framework Announcement
The Ministry of Finance has indicated that an operational framework for restructuring income tax deductions and collection systems is expected by November 2025. This framework should outline:
- Final decision on the deduction ceiling
- Any adjustments to PIT rates or brackets (if applicable)
- The implementation and transition arrangements
- Changes to e‑filing and documentation requirements
This timeline is designed to give individuals and businesses at least one full calendar year to adjust before the 2026 income year begins.
6. Digital Modernization of Tax Collection
Alongside deduction reforms, the government is also pursuing a digital transformation of tax administration:
- Improved e‑filing platforms to make filing simpler and reduce errors
- Greater data sharing between agencies (Revenue, Excise, Customs, Social Security)
- Use of data analytics and AI for risk‑based audits and anomaly detection
- Gradual movement toward more real-time reporting from employers and financial institutions
Finance ministry and Revenue Department officials see digital modernization as essential for:
- Expanding the effective tax base
- Reducing evasion and fraud
- Improving voluntary compliance
- Supporting potential future reforms, such as broader filing requirements
For taxpayers, this should mean more user‑friendly systems, but also greater scrutiny, especially for high‑deduction and higher‑income profiles.
7. Who Will Be Most Affected?
7.1 High‑Income Individuals with Large Deductions
The primary impact will fall on taxpayers who currently:
- Maximize RMF / SSF / provident fund contributions
- Carry mortgages and claim full interest deductions
- Maintain large life/health insurance policies
- Claim multiple family-related allowances
- Make sizable charitable donations
If a global cap is introduced below their current total deduction amount, part of their deductions will no longer reduce taxable income, resulting in higher PIT payable.
7.2 Middle‑Income Earners
Most middle‑income taxpayers:
- Use basic allowances and perhaps moderate RMF or insurance deductions
- Do not approach very high total deduction amounts
These taxpayers are less likely to hit any reasonable ceiling. For them, the impact should be modest or negligible, unless the cap is set very low or other structural changes accompany it.
7.3 Lower‑Income Individuals and Non‑Filers
Lower‑income individuals who:
- Earn below the taxable thresholds, or
- Have very limited deductions
are unlikely to be directly affected by a deductions cap. However, broader moves to increase formalization and encourage universal filing could eventually touch this group, but those ideas remain longer‑term.
7.4 Foreigners and Expats
For expatriates and foreign residents:
- The proposed reforms concern mainly Thai-source deduction rules.
- The treatment of foreign‑source income (e.g., remittance rules, timing of funds transferred into Thailand) is being reformed under separate measures, but is conceptually distinct from the deduction ceiling.
- Expats who use Thai RMFs/SSFs, insurance products, or mortgage deductions may experience similar impacts as Thai residents if they currently claim large deduction totals.
Professional advice is recommended for expats with complex income structures or multiple tax residencies.
8. Preparing for the New Changes to Thai Income Tax in 2026
Although not all details are finalized, taxpayers can already take steps to prepare.
8.1 For High‑Deduction Taxpayers
- Map Your Current Deductions
List all deductions claimed for tax years 2023–2025 (RMF, SSF, insurance, donations, mortgage interest, allowances). This will help you see whether you are above a plausible future ceiling. - Prioritize the Most Valuable Deductions
If forced to choose due to a cap, many taxpayers may prioritize RMF/SSF and mandatory retirement savings, which serve both tax and long‑term financial goals. - Consider Timing of Contributions
Since 2025 income is not affected, some may decide to front‑load retirement or investment contributions into 2025, while the current generous rules still fully apply. This should be weighed against liquidity and investment considerations, not just tax. - Strengthen Documentation
With more digital audits, keep clear records of all deduction-related payments (receipts, policy schedules, fund statements, donation certificates).
8.2 For All Taxpayers
- Learn to Use E‑Filing Platforms Effectively
E‑filing is likely to become the primary channel. Becoming comfortable with the system now will reduce stress when the new rules take effect. - Monitor Official Announcements
Watch for Ministry of Finance and Revenue Department announcements, especially around November 2025, when the final framework is expected. - Seek Professional Advice if Needed
Those with multiple income sources (employment, rental, foreign income, director fees, etc.) should consider consulting a tax advisor to model different scenarios under likely ceiling levels.
9. Professional Tax Advisory Services for Expats in Thailand
Navigating these upcoming reforms can be complex, especially for foreigners with obligations both in Thailand and abroad.
If you:
- Are unsure about your tax responsibilities in Thailand vs. your home country
- Hold investments or pensions overseas and are unsure how they interact with Thai tax rules
- Claim substantial Thai deductions (retirement funds, insurance, donations, mortgage, etc.)
it is prudent to consult with a professional tax advisor familiar with both Thai law and international tax issues.
A qualified advisory firm can help you:
- Assess whether you are likely to be affected by the deduction ceiling
- Optimize your contributions and deduction strategy before the new rules apply
- Stay compliant with evolving reporting and documentation requirements
- Avoid unintentional non‑compliance as the Revenue Department’s digital capabilities expand
10. Key Takeaways
- Core Direction: Thailand is moving toward capping total PIT deductions, focusing on higher‑income individuals who currently claim very large deduction amounts.
- Timeline:
- VAT: Remains at 7% until 1 October 2026; a potential reversion to 10% is a separate policy lever.
- Main Motivation: Revenue shortfalls, a narrow PIT base, and rising public debt driving the need for fiscal consolidation.
- Who Is Most Affected: High‑income taxpayers with stacked deductions over ~1 million THB per year; most middle‑income and lower‑income taxpayers will see limited impact.
- What To Do Now: Understand your deduction profile, improve documentation, monitor official announcements, and consider professional advice if you are in a higher‑deduction category.
The reforms are best understood not as “punishment” for taxpayers but as part of a broader effort to modernize Thailand’s tax system, strengthen public finances, and ensure that those most able to contribute do so in a more consistent and transparent way.