Tariff cut on luxury good sounds good for some

The Finance Ministry wants to cut import duties on luxury goods, hoping to make Thailand a “shopping mecca” like Hong Kong or Singapore. The plan is aimed at attracting even more foreign tourists to Thailand, which saw 22.3 million arrivals last year and 17.4 million in the first eight months of this year. With an economic slowdown and delays in government mega-projects, the tourism industry, expecting 26.2 million foreign arrivals this year, is now the only promising economic engine.

Areepong Bhoocha-oom, permanent secretary for finance, said the government will reduce taxes on luxury imports to a level competitive with destinations like Singapore and Hong Kong, which have zero tariffs on luxury goods. “Thailand still subjects such goods to 30-per-cent duties. If tourists could purchase all they want here, it would boost spending,” he said.

The proposed reduction in import duties, initially on items like cosmetics, perfumes and wristwatches, will be submitted for Cabinet approval in one or two months, to become effective within the year. Areepong said more tourist spending would boost economic growth in the second half of the year.

The plan has the backing of importers and the tourism industry, which stand to benefit most. Tourism Council vice president Pornthip Hirunkate said the plan would be a boon to the industry because most Asian tourists do a lot of shopping here. Association of Domestic Travel president Yutthachai Soonthronrattanavate said the tax cut would help lure wealthy Chinese tourists. In the first eight months of this year, 3.2 million Chinese tourists visited Thailand.

However, economists warn that the plan could do more harm than good. Professor Teerana Bhongmakapat of Chulalongkorn University said the main beneficiaries would be the malls and the foreign luxury brands. He doubts that the tax cut would significantly increase tourist arrivals or spending. It would rather cause Thailand to lose more foreign currency. Wisarn Pupphavesa, an economist at the Thailand Development Research Institute, said the tax cut would have little impact in luring tourists since few foreigners come here looking for designer goods. 

In a survey of foreign tourists last year, the Tourism Authority found that only 3 per cent who came to shop were looking for designer products. Only 4 per cent viewed Thailand as a shopping destination. More than half said they shopped in Thailand because the prices were low. Others pointed to the quality, neatness and diversity of available products. 

Boonkiet Chokwatana, president of Saha Group’s ICC International, a distributor of luxury products, warned that the plan would lead to more imports and increase Thailand’s trade deficit. The Finance Ministry’s Fiscal Policy Office recently met representatives of local luxury-goods makers to sound them out about the plan. Most opposed it, fearing their business would be damaged, a ministry source says.

The tariff cut would almost certainly boost local demand for luxury goods because of the lower prices, but Thailand would end up importing more goods and bearing higher a trade deficit. In the first half of this year the deficit topped Bt514 billion. Local producers of luxury goods are likely to be affected by cheaper imports, and the state would lose revenue from import tariffs, although some government officials estimate the loss at “a few hundred million baht”. 

Will the income earned from foreign shoppers buying cheaper luxury goods offset these negative consequences? The government should carefully consider the pros and cons to determine whether the plan is good for the economy and country as a whole, or whether it benefits certain groups to the detriment of the rest of society.