Gold traders warn VAT plan may hurt savers amid BoT scrutiny
Thai gold traders warn that tighter regulation and a possible VAT on gold investment could hurt gold saving and market confidence
Thailand’s gold industry is seeking to defend its role in the economy as state agencies and the Bank of Thailand increase scrutiny of gold trading amid concerns over baht volatility.
Thanapisal Koohapremkit, executive chairman of GCAP Co Ltd, said the gold business was now being closely watched by the government and the central bank as higher global gold prices and heavier trading volumes have increased the need for traders to use US dollars to manage exchange-rate risks and imports.
That activity, he said, has led some observers to blame gold traders for adding pressure to the baht. However, he argued that such a view oversimplifies the issue.
He said gold trading can affect the currency in more than one direction. In some years, net gold imports may help weaken the baht, while gold exports can generate economic value and support the economy. The impact depends on several factors, including the trade balance, interest-rate policy and foreign capital flows.
“There are times when gold supports the baht, but not every time,” he said.
“In some years, we import more than we export, which helps weaken the baht. Whether the dollar-baht rate moves up or down depends on many factors. Yes, we have real volume, but there are two sides to the coin. When we are the hero, no one says we are the hero. But when we are the villain, people say we are the villain.”
Thanapisal said any regulatory framework must clearly distinguish transparent gold operators from fraudsters who misuse the image of gold businesses to deceive the public or operate pyramid-style schemes.
He warned that measures designed to crack down on fraud should not end up damaging legitimate market mechanisms or discouraging proper gold saving.
VAT concern over gold investment
Gold traders are particularly concerned about proposals to impose 7% value-added tax on gold investment, saying the measure could increase costs for both businesses and the public.
Thanapisal said the impact would be especially serious for gold saving, because gold does not generate interest income. Returns depend largely on price differences between buying and selling.
If tax costs are added, the incentive to save in gold could decline sharply, he said.
He suggested that the government should shift from a role focused mainly on control and supervision towards one that also supports people in saving gold through proper channels.
He said a model similar in concept to the “retirement lottery” could be adapted to encourage people to accumulate stable assets instead of turning to high-risk speculation.
Call to separate traders from scammers
The gold industry also wants regulators to avoid treating all market participants in the same way.
Thanapisal said controls aimed at preventing fraud should focus on illegal operators and deceptive schemes rather than legitimate gold businesses that operate transparently.
The concern comes as the authorities have been paying closer attention to the links between gold trading, foreign exchange flows and baht movements. The Bank of Thailand has tightened scrutiny of foreign-exchange forward transactions linked to gold trading by requiring clearer evidence of genuine exports and faster supporting documents.
The central bank has also identified large gold-related foreign-exchange flows as one factor that can intensify baht volatility, particularly through online or “paper gold” trading.
Gold association opposes VAT idea
Jitti Tangsitpakdee, president of the Gold Traders Association and managing director of Gold Bullion Corporation Co Ltd, said state supervision could be useful in some areas, such as requiring gold shops to report trading transactions and encouraging US-dollar settlement to reduce baht volatility.
Jitti said such measures also added more procedures for operators.
He said earlier claims that gold exports to Cambodia were causing the baht to strengthen had already been challenged by several academics. He argued that gold trading for business purposes follows market mechanisms and should not be treated as the main factor determining whether the baht strengthens or weakens.
In a related development, 14 major gold traders agreed in principle with the Bank of Thailand to develop a US-dollar-denominated trading system within six months, with the aim of reducing pressure on the baht from large gold transactions.
The debate follows earlier reports that the Finance Ministry and the Bank of Thailand were considering measures related to online gold bar trading, including possible tax options, as authorities looked at ways to reduce the impact of large gold-related transactions on the baht.
Jitti said several Bank of Thailand measures were reasonable because they focused mainly on high-volume speculative gold transactions, such as setting a limit of 50 million baht per person per day for online gold trading.
However, the measures do not apply to ordinary gold buying for saving or wearing, such as jewellery purchases at traditional gold shops, because these transactions are not considered a key factor driving baht appreciation.
On the proposal to impose 7% VAT on gold investment, Jitti said he disagreed with the idea at this stage.
He warned that the measure could have a broad impact on the gold business, reduce market flexibility and potentially weaken Thailand’s position as a regional leader in the gold trade in ASEAN.
The Gold Traders Association has already submitted its proposals to the Finance Ministry, outlining concerns and recommendations on how the sector should be supervised without undermining legitimate gold trading or public saving.
