Mixed response to duty cut plan

While winning support from importers and tourism operators, the Finance Ministry’s plan to axe the import tariffs on some designer goods has drawn strong opposition from many local manufacturers of luxury products.

Pornthip Hirunkate, vice president of the Tourism Council of Thailand, is pleased with the proposal, saying the tax cut would be a boon to the travel industry as Thailand competes head-on with Singapore and Hong Kong to become a shopping paradise in the region.

She believes this will be a new magnet, as shopping has become part of tourism packages especially popular with travellers from other Asian countries. Shopping is on the to-do list of more than 60 per cent of tourists, she said, led by those from China, India, South Korea and Japan.

Within a month or two, the ministry plans to seek the Cabinet’s approval for cutting the duty from 30 per cent to zero. Perfumes, watches and clothing will be the first three categories to benefit from the cut, reducing their prices for foreign tourists and local shoppers alike.

Yutthachai Soonthronrattanavate, president of the Association of Domestic Travel, said the tax cut would help lure wealthy Chinese.

“Let’s take a look at the Chinese. They favour brand-name products like Louis Vuitton and Prada. We can benefit from their shopping sprees,” he said. 

He acknowledged that some tax revenue would be lost, but insisted this would be offset by an increasing number of tourists, who wold spend more and stay longer.

Pornthip added that another positive was that the tax cut would reduce overseas travelling by Thais, as shopping is the main purpose of many such trips. Meanwhile, on the negative side as far as local manufacturers are concerned, they will need to improve the quality of their products. Still, she believes that they won’t collapse given that they cater to different target groups from luxury-brand products. 

Jiratchayuth Amyongka, head of SME banking at Thanachart Bank, agreed that this would discourage some Thais from shopping overseas. Indeed, the tax cut won’t save many costs for importers, but sales volume will rise. The bank is looking to extend working capital for importers, who will need new capital to finance expansion. 

Among those opposing the move is ICC International, a producer of well-known brand-name clothing and cosmetics and an importer of foreign brands.

Boonkiat Chokewattana, president and executive chairman, is worried that Thais will switch to foreign luxury brands, which will become cheaper. This will hurt Thai manufacturers, particularly those in the clothing and cosmetics areas. 

Thailand could also suffer a widening trade deficit if more products are imported, he warned.

Ketmanee Lertkitcha, president of the Thai Cosmetic Manufacturers Association, also frets about the fiercer competition, which she fears may force local manufacturers to shut down. Unlike Singapore or Hong Kong, Thailand is a manufacturing base for cosmetics. She said the pharmaceutical industry previously suffered from a similar duty waiver, and many companies had to cease their business. 

She noted that most local manufacturers were small or medium-sized enterprises and they had already suffered from the rise in the minimum daily wage. 

“We oppose the move, and we have repeated this to the Fiscal Policy Office several times, because [sales of] Thai cosmetics have shown a double-digit growth rate and our export value last year was more than Bt140 billion,” she said. 

“To attract tourists, there’s no need to cut duties. Malaysia, for instance, did so but failed to see a significant rise in the number of tourists.”

To soothe the worries, Deputy Finance Minister Benja Louicharoen insisted that the duty cut would be applied only to some product categories – such as sunglasses, watches and cameras – to minimise impacts on local manufacturers. 

Earlier, the Fiscal Policy Office discussed the duty-cut proposal with makers of high-end products, and almost all of them disagreed with such a policy. However, the FPO judged that the information they supplied was not enough to ensure that the policy would definitely hurt their businesses.

The Finance Ministry anticipates that it will lose hundreds of millions of baht in tax revenue from the measure. However, it believes this will be offset by other income, as tourism operators and importers see more business. Revenue from value-added tax will also rise. According to the Thailand Future Foundation, foreign tourists’ spending in Thailand, excluding accommodation expenses, is 50 per cent lower than in Indonesia and 20 per cent lower than in Malaysia.