The seasonal tax break for shoppers seems unwise and unnecessary in a recovering economy
The need for an extra tax incentive to boost spending on shopping towards the end of the year has become less pressing after the country’s GDP growth strengthened in the first half to an annualised 3.5 per cent, the fastest growth in four years.
The second quarter saw gross domestic product grow 3.7 per cent year on year, marking a turnaround for an economy dragged down by weaknesses over the past few years.
Yet that hasn’t stopped the government from pushing ahead with the 23-day tax break for year-end shoppers, in the hope of turbo-boosting consumption during the festive season.
This is the third year in a row Thailand has turned to the special measure, but the case for waiving tax is much weaker this time around.
The so-called Santa Claus measure will cost the Finance Ministry about Bt2 billion in tax revenue, offset by aimed-for economic growth of 0.05 per cent of GDP.
The Revenue Department expects taxpayers to spend an estimated Bt22 billion during the period while seeking personal income tax deductions on their purchases totalling about Bt2 billion.
A wide range of goods and services are covered by the national shopping stimulus campaign, though notable exemptions are alcoholic beverages, tobacco, fuels, automobiles, travel and hotel spending.
While the stimulus effect may be less obvious due to the ongoing economic recovery, the government probably expects other indirect benefits – including the entry of more businesses into the value-added tax system, since only VAT-paying establishments are eligible to issue the receipts customers need to get the deduction.
In addition, this year’s tax break ends on December 3 so is timed to exclude the impact of December’s sales.
Another indirect benefit comes with the possibility of two national shopping sprees – the first round of tax-driven spending up to December 3 followed by the annual festive splurge at the turn of the year.
However, critics say the measure is unnecessary since the economy has already recovered. The government would do better to keep the tax revenues for other purposes, they add.
There are also worries that shoppers will change spending habits to take advantage of the tax freebie, resulting in little net benefit for the overall economy.
A similar logic was at work in the Bank of Thailand’s recent decision not to adjust the policy interest rate, leaving it unchanged at 1.5 per cent per year.
The Finance Ministry, meanwhile, is eyeing a slight rate cut, which would boost consumption, investment and other growth drivers with the fuel of cheaper money.
Yet, the central bank seems to prefer a more conservative approach on monetary policy, erring on the prudent side, especially amid the ongoing trend of economic recovery.
Critics also point out that those with low incomes are unlikely to benefit much from the Santa Claus measure since the campaign is aimed exclusively at middle-income citizens and above as well as salaried white-collar workers currently paying personal income tax.