Thailand: Purposed Changes to Personal Income Tax Exemption on Severance Pay
The Ministry of Finance has put forward a draft ministerial regulation to revise the personal income tax exemption on severance pay. This proposal aims to update the existing threshold established in clause 2(51) of Ministerial Regulation No. 126 (B.E. 2509), as amended by Ministerial Regulation No. 217 (B.E. 2542).
Current Exemption
Under the current ministerial regulation, employees receiving severance pay in accordance with the Labor Protection Act B.E. 2541 and State Enterprise Relations Act B.E. 2543 are eligible for tax exemption. This exemption applies to the portion of severance pay not exceeding the salary for the last 300 working days, with a maximum limit of 300,000 baht. Notably, this exemption excludes severance pay received due to retirement or the expiration of fixed-term employment contracts.
The existing regulation aligns with Section 118 of the Labor Protection Act B.E. 2541 (No. 1), which mandates severance pay for employees with over 10 years of continuous service.
Legislative Changes
The Labor Protection Act B.E. 2562 (No. 7) amended Section 118, introducing a new severance pay rate for employees with over 20 years of continuous service. This amendment increased the severance pay to not less than the salary for the last 400 working days.
Proposed New Exemption
In response to these legislative changes, the Ministry of Finance has drafted a revised ministerial regulation. The key changes in the draft revised ministerial regulation are:
- Increasing the tax-exempt portion of severance pay to the amount not exceeding wages or salary for the last 400 working days.
- Raising the maximum exemption limit from 300,000 baht to 600,000 baht.
- Applying the new exemption to severance pay received from 1 January 2023 onwards.
Objectives
The proposed changes serve two main purposes:
- Aligning the tax exemption regulations with the amended Labor Protection Act B.E. 2541.
- Providing tax relief to employees facing termination, especially in light of economic challenges.
Implementation Status
The Cabinet has approved the draft revised ministerial regulation. It will come into effect upon publication in the Royal Gazette.
This revision aims to update the tax exemption on severance pay to reflect recent changes in labor law and to provide increased financial support to employees during employment transitions.