Duty cuts to make Thailand a shopping paradise

Thailand is on its way to becoming a shopping mecca like Hong Kong and Singapore, as the Cabinet is expected to cut import duties on designer goods in a couple months.

“The government has a policy for Thailand to be a shopping paradise so it will reduce the tax on luxury imports to a competitive level with other countries like Singapore and Hong Kong, which have zero tariff on luxury goods like perfumes and cosmetics,” Areepong Bhoocha-oom, permanent secretary at the Finance Ministry, said yesterday.

Lower customs taxes on luxury goods, which local shopping-mall operators have been waiting for years, could draw more foreign visitors and spur domestic spending. 

The ministry’s move comes as the economy braces for low exports and declining domestic spending. Also likely to hurt this year’s growth are possible military strikes on Syria, which could push up oil prices and further dampen domestic spending. With delayed government projects, the tourism industry, expecting 26.2 million foreign arrivals this year, is now the only promising economic engine.

“But Thailand still subjects such goods to 30-per-cent duties. If tourists come to Thailand and can purchase all they want here, it would boost spending per tourist,” he said.

From October-March, luxury merchandise imports surged 24 per cent on year to US$1.68 billion or Bt51 billion. The top three product categories were fruits (Bt10 billion), perfumes and cosmetics, and watches and accessories.

The proposed reduction in import duties, initially on some items like cosmetics, perfumes and watches, would be submitted for Cabinet approval in one to two months so that it would be effective this year, he said.

More spending would push up economic growth in the second half. It would also help promote the country’s tourism, which provides employment to a few million workers. Eventually, Thailand would be a more competitive destination than other shopping oases like Singapore and Hong Kong, he said.

This measure would be implemented carefully to minimise the impact on domestic businesses.

The measure would not promote spending by Thais on luxury items, as Thais with purchasing power nowadays also shop for the items abroad.

Besides the tourism-related measure, Thailand would also promote border trade to lift economic growth. While exports to major economies drop, border trade is up 15 per cent so far this year. The Finance Ministry is eyeing more funding for border activities and greater convenience in cross-border currency transactions.

 

Upbeat on economy

The economy in the second half would not be in as sorry a state as some fear. There would be public spending of about Bt100 billion in the remaining months on top of special projects under two infrastructure schemes, he said. 

Full-year growth this year would reach the targeted 4 per cent, he said.

The Fiscal Policy Office would assess the economy again at the end of this month. Besides soft export demand, the oil price is now a major risk to growth. Assuming Dubai crude would average $106 this year, the office in June forecast Thailand’s growth at 4-5 per cent for 2013.

As global leaders weigh the option to launch military strikes against Syria, economists here are fretting about an eventual war – as oil prices could spike and deal a heavy blow to a net-energy-importing country like Thailand.

From above US$110 per barrel in February, the average Dubai crude oil price softened to $100-$101 in the second quarter. It has recently accelerated on growing worries about Syria. The spot price last week was $110.74.

“It’s worrisome, as a spike would raise the natural gas price and electricity tariff. The government just adjusted the cooking gas price and higher energy prices are coming when Thailand’s economy is witnessing decelerating growth,” said Praipol Khumsap, an economics lecturer at Thammasat University. Crude could hit $150 in case of supply disruption, he said.

The Fiscal Policy Office estimates that for every $1 increase in the Dubai price, inflation could rise by 0.14 percentage point.

Still, Areepong and Paiboon Kittisrikangwan, an assistant governor of the Bank of Thailand, agreed that even with a strike, the impact should be short-lived. Paiboon said that in the long term, global demand and supply would determine oil prices.

About 90 per cent of energy consumed in Thailand is imported.