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Luxury tax cut 'could affect Asean-EU talks'

Sep 24. 2013
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By The Nation

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As the government pushes for a cut in the luxury-goods import tariff in October, a Finance Ministry unit is suggesting Thailand put the plan on hold and use the tariff as a bargaining tool in the Asean-EU free-trade agreement negotiations.
Areepong Bhoocha-oom, permanent secretary for Finance, said yesterday that Prime Minister Yingluck Shinawatra was rushing the ministry to conclude the “Shopping Paradise” campaign, which will include a tariff cut on luxury goods from 30 per cent to 5 per cent. He said the measures would be ready for the Cabinet’s approval in October – the start of Thailand’s high tourism season. 
Areepong said a thorough study is necessary to learn the negative impact on local products in the categories that will be affected by the tax cut, particularly clothes and cosmetics. He admitted that higher tourism income, following the increasing number of foreign shoppers, would help boost the economy along with more border trade. 
However, Somchai Sajja-pongse, director-general of the Fiscal Policy Office, said that Thailand should not axe the taxes now, as the Asean-EU FTA negotiations are pending. He noted that under the FTA framework, import tariffs on several products – including luxury goods – would be cut to zero per cent. 
A study on the impact of the tax cut on shoes, perfumes, handbags and cosmetics, which represent about 10 per cent of total import value, is under way. 
Somchai is concerned local producers with products in the categories may be affected by the move. Unlike Malaysia, which cut the import tariffs to zero per cent about 4 years ago, the number of SMEs in Thailand is larger than in Malaysia, he noted, and they are not strong enough to compete with global brands. 
The office will hold a discussion with local producers soon and a possible remedy may involve a cut in import tariffs on raw materials.
The Thai economy is now at risk of deceleration, due to delayed government spending as well as a cut in domestic spending and investment. 
The Cabinet yesterday acknowledged that the 2014 fiscal budget would not be disbursed in October, but said rushing to disburse investment from the previous fiscal year could help.
Somchai also said that under a joint discussion with the Comptroller General’s Office, it is likely the government will disburse a Bt700-billion budget during October and December. 
The government is set to run a deficit of Bt250 billion in the fiscal year, when total expenditure is set at Bt2.5 trillion.

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