Indicators in February foreshadow economic recession this year

[webfact]

Indicators in February foreshadow economic recession this year 

By The Nation

 

 

Indicators in February pointed to an economic downturn under impact of the Covid-19 pandemic, battering the domestic economy and Thai exports, according to the Finance Ministry.

 

Consumer spending saw zero growth during the month as value-add tax collection increased 4.6 per cent year on year while car sales, new registrations of motorcycle dropped 15.4 per cent and 3.7 per cent respectively, said the Finance Ministry’s Fiscal Policy Office on Monday (March 30).

 

The contraction in spending on durable goods indicated consumers were not confident of their future incomes as reflected by the slide in consumer confidence index to 52.5.

 

Private investment also ran out of stream with import of capital goods and commercial car sales fell by 10.2 per cent and 18.1 per cent respectively. Real estate sector was also hit hard as evidenced in the 18.8 per cent contraction in tax collection from property transactions.

 

Export of goods in dollar term last month contracted by 4.5 per cent , resulting from the fallout of Covid-19 on the economies of Thailand's trading partners. When taking out special items such as gold, oil products, weapons, Thai exports expanded 1.5 per cent year on year in February.

 

Tourist arrivals in February plunged 42.8 per cent to 2.06 million, of whom the number of Chinese tourists plunged 84.9 per cent as the coronavirus spread from that country to most nations in the world. 

 

Manufacturing index contracted 5.2 per cent as the production volumes of car, sugar and plastic pellet fell. However, medicine, frozen sea food and beverage saw expansion during the month.

 

Farm production index contracted by 4.5 per cent due to the twin impact of drought and overall economic slowdown.

 

Public debt to GDP at the end of January stood at 41.3 per cent, indicating a relatively solid fiscal position , but is expected to rise as the government needs huge funding to cope with the virus fallout. International reserves at the end of February amounted to $229.5 billion, providing a cushion for Thailand amid turmoil in the global financial market and strengthening of the dollar against the baht and other currencies.

 

Total public spending in February contracted by 6.9 per cent and capital spending plunged 76.5 per cent due largely to the delay in the passage of fiscal budget 2020. Spending is expected to be disrupted as the government may reallocate financial resources to mitigate impact of the virus.

 

Most research houses predict Thailand will face a economic recession this year while Bank of Thailand forecast a 5.3 per cent contraction in GDP.

 

Source: http://www.nationthailand.com/business/30385105?utm_source=homepage&utm_medium=internal_referral

 

-- © Copyright The Nation Thailand 2020-03-31

Follow Thaivisa on LINE for breaking COVID-19 updates

[ChrisY1]

Duh!......Recession for Thailand....where's Somkid and Bright eyes....they'll have none of this rubbish!

[legend49]

Well done little Mr P. Maybe reward the cabinet with a pay rise?

[Geoffggi]

Absolutely no news here the whole world is in the same boat, these figures only reflect what everyone knows to be happening in every country.

[ozz1]

Time to roll out the fortune teller it's all lies I tell you

[ParkerN]

5 hours ago, webfact said:

When taking out special items such as gold, oil products, weapons, Thai exports expanded 1.5 per cent year on year in February.

Right on cue.

 

"If we take out all loss items, what we're left with is a small profit".

 

Hardly a surprise, someone's got a new calculator and wants to show off how good it is.

 

 

 

[Yadon Toploy]

47 minutes ago, ozz1 said:

Time to roll out the fortune teller it's all lies I tell you

You type that in jest but they do consult fortune tellers. 

 

https://www.reuters.com/article/us-thailand-politics-fortunetellers/thai-pm-prayuth-says-no-harm-listening-to-fortune-tellers-idUSKCN0HI11120140923

[ThailandRyan]

3 hours ago, legend49 said:

Well done little Mr P. Maybe reward the cabinet with a pay rise?

TAT will now be able to say, when things open back up of course, "Thailand breaks year over year trends by having a Million % increase in tourism"

[Isaan sailor]

You know, Bank of Thailand, you could simply drop the Baht, say, 20%.  It may not save tourism—but it’d be gangbusters for your exports.

[spidermike007]

Really? A recession? How surprising. How about a 25% contraction of the economy, exports down by 40%, unemployment of 10-20%, mass suicides, and tourist arrivals of 11 million, for the year 2020?

 

My prediction on the virus? A total of less than 5,000 cases, and death toll of around 100. Yet, millions of lives devastated by this inane economic shutdown. And perhaps years, before the country recovers from this.

 

The only people on this forum who seem to support this shutdown, are those who are comfortably retired, with a nice pension. Easy for them to judge. 

Edited March 31, 2020 by spidermike007

[lkn]

Can someone explain why VAT collection has gone up by 4.6% when consumer spending hasn’t?

 

[Galomir]

2 minutes ago, lkn said:

Can someone explain why VAT collection has gone up by 4.6% when consumer spending hasn’t?

 

More booze sales

[sammieuk1]

Sure TAT will bolster the economy with a 10 million tourist increase anytime now???? 

[lkn]

21 minutes ago, spidermike007 said:

My prediction on the virus? A total of less than 5,000 cases, and death toll of around 100. Yet, millions of lives devastated by this inane economic shutdown. And perhaps years, before the country recovers from this.

If the lockdown works, it’s easy to point fingers and say that they overreacted, because we do not know what the case count and death toll would have been, had they not locked down the country.

 

Though we can look at Italy, despite introducing a lockdown 3 weeks ago, and with a population smaller than that of Thailand, they had 812 new deaths in the last 24 hours, bringing their total death toll to 11,660 and a case count of 101,991.

 

So the seriousness of this virus should not be downplayed, as the president of the U.S. did for the first 6 weeks, and now he is saying that if they “only” get 100,000 deaths (in the U.S.) then they will have done good.

 

You can of course question the ways that countries have handled the virus, and I don’t think just locking down everything for an unknown amount of time is the best strategy, I would have preferred to see much more testing and contact tracing, this would have been expensive (and maybe they just couldn’t produce enough testing kits), but hardly as expensive as the stimulus packages that the various countries now have to approve.

 

Edited March 31, 2020 by lkn

[spidermike007]

2 minutes ago, lkn said:

If the lockdown works, it’s easy to point fingers and say that they overreacted, because we do not know what the case count and death toll would have been, had they not locked down the country.

 

Though we can look at Italy, despite introducing a lockdown 3 weeks ago, and with a population smaller than that of Thailand, they had 812 new deaths in the last 24 hours, bringing their total death toll to 11,660 and a case count 101,991.

 

So the seriousness of this virus should not be downplayed, as the president did for the first 6 weeks, and now he is saying that if they “only” get 100,000 deaths (in the U.S.) then they will have done good.

 

You can of course question the ways that countries have handled the virus, and I don’t think just locking down everything for an unknown amount of time is the best strategy, I would have preferred to see much more testing and contact tracing, this would have been expensive, but hardly as expensive as the stimulus packages that the various countries now have to approve.

 

The testing and contact tracing is what they did in South Korea, with great success. It is the way to go. It represents the best result, and the least amount of suffering for the fewest people. Lockdown is inane.

[lkn]

2 minutes ago, spidermike007 said:

The testing and contact tracing is what they did in South Korea, with great success. It is the way to go. It represents the best result, and the least amount of suffering for the fewest people. Lockdown is inane.

Yes, Taiwan, Japan, Hong Kong, and Singapore also all seemed to do a good job and avoid much interruption to people’s regular life, although Japan is now starting to ask people to “stay inside” because of increasing case counts.

 

Though all these countries have strong governments and a fairly educated population that trust their government, and that might be a big reason as to why they could pull this off with so little inconvenience.

 

But even the U.S. appears to be unable to handle the pandemic properly, OK, their current president is ignorant beyond belief, but still, with U.S. struggling to contain this, and also several European countries, I don’t see how you could have expected the Thai government to have handled this any better.

[whiteman]

spider mike can u not get to the bars on your small pension in your 22 meter room with only a fan to keep you company  and you also say only 100 dead you live in a dream world

[RichardColeman]

Hats off to the VAT department that managed to collect near 5% more in a time of near 10%  declines in all business across the board

[timendres]

13 hours ago, lkn said:

Can someone explain why VAT collection has gone up by 4.6% when consumer spending hasn’t?

The VAT is also collected on all invoices between companies, not just consumer purchases.

Hence the name "Value Added". 555

[anto]

19 hours ago, whiteman said:

spider mike can u not get to the bars on your small pension in your 22 meter room with only a fan to keep you company  and you also say only 100 dead you live in a dream world

>>in your 22 meter room with only a fan<<.......Fans are safer company than the average shark Thai girl.

[lkn]

11 hours ago, timendres said:

The VAT is also collected on all invoices between companies, not just consumer purchases.

Hence the name "Value Added". 555

A business pays VAT (to the government) on all their sales both to consumers (B2C) and other businesses (B2B), but a business get reimbursed for their VAT payments, so effectively no VAT is collected for B2B transactions, furthermore, why would businesses have more income when consumer spending is down (though moot question, because as stated, it does not contribute to the VAT collected, only B2C transactions contribute)?

 

[timendres]

1 minute ago, lkn said:

A business pays VAT (to the government) on all their sales both to consumers (B2C) and other businesses (B2B), but a business get reimbursed for their VAT payments, so effectively no VAT is collected for B2B transactions, furthermore, why would businesses have more income when consumer spending is down (though moot question, because as stated, it does not contribute to the VAT collected, only B2C transactions contribute)?

When I invoice another company, I add a 7% VAT. If that company has a VAT number, then they get to "withhold" 3% of that 7% payment, but I have to pay the entire 7% to the government. At the end of the year, the other company must then pay the 3% that they withheld to the government, and if they provided me with the proper withholding document, I can file to get the 3% returned to me.

 

In other words, companies pay 7% VAT on all invoices from other companies (your 'B2B' case).

[lkn]

15 minutes ago, timendres said:

In other words, companies pay 7% VAT on all invoices from other companies (your 'B2B' case).

Yes, but this VAT is reimbursable, so it should not contribute to the government’s VAT income. I realise the table in the article says “VAT collected” so in theory they could include it, but that still doesn’t explain why “VAT collected” is up 4.6% since last year, i.e. you would think that B2B sales are also down, given that consumer spending is down, i.e. restaurants, hotels, travel agencies, shops, etc. are not ordering goods and services from other businesses, so (reimbursable) B2B VAT shouldn’t be up.

[timendres]

7 minutes ago, lkn said:

Yes, but this VAT is reimbursable, so it should not contribute to the government’s VAT income. I realise the table in the article says “VAT collected” so in theory they could include it, but that still doesn’t explain why “VAT collected” is up 4.6% since last year, i.e. you would think that B2B sales are also down, given that consumer spending is down, i.e. restaurants, hotels, travel agencies, shops, etc. are not ordering goods and services from other businesses, so (reimbursable) B2B VAT shouldn’t be up.

Apparently your company has some sort of special "VAT Exclusion" clause with the revenue department.

My company pays 7% VAT on every invoice from another company, as does every other company that does business with my company. There is no reimbursement of that VAT.

[lkn]

2 hours ago, timendres said:

My company pays 7% VAT on every invoice from another company, as does every other company that does business with my company. There is no reimbursement of that VAT.

The reimbursable amount is the difference between input VAT (purchases) and output VAT (sales). For a succesful business, output VAT should be larger than input VAT, so you end up paying VAT.

 

For example a business that buys goods and services from other businesses for 100,000 baht excl. VAT will pay 7,000 baht in VAT on these goods and services (paid to the other businesses, who will pay it to the revenue department as collected VAT).

 

But if the business makes sales of 150,000 baht excl. VAT then it will collect 10,500 baht from its customers.

 

This business will then have to pay 10,500 - 7,000 = 3,500 baht to the revenue department in VAT liabilities.

 

If on the other hand it only made sales for 80,000 baht (e.g. due to lower sales caused by the lockdown), it only collects 5,600 baht in VAT, which is less than what it paid, therefore this business is now entitled to a VAT refund of 1,400 baht.

 

An export business that has no sales in Thailand will effectively get all VAT paid reimbursed.

 

This is all explained in English at the Revenue Department’s website and is basically the same system used the world over. The problem if B2B VAT is not reimbursable is that you end up double, triple, or quadruple taxing all your goods and services (each chain would add tax again).

 

Quoting the relevant part from: https://www.rd.go.th/publish/6043.0.html

 

7. Tax Calculation

VAT liability = Output Tax - Input Tax

• "Output Tax" is a tax collected or collectible by VAT registered person from his customers when goods or services are supplied.
• "Input Tax" is a tax charged by another registered person on any purchase of goods or provision of services. The term also includes any tax charged on imported goods.

 

8. Refund

In each month, if input tax exceeds output tax, taxpayer can claim for the refund, either in form of cash or tax credit to be used in the following months. Therefore, in case of zero-rated, taxpayer will always be entitled to VAT refund. As for unused input tax, it may be creditable against output tax within the next 6 months. However, the refund can only be claimed within 3 years from the last day of filing date.

 

Certain input taxes, such as tax in relation to entertaining expenses, are not creditable under VAT. However, those non-creditable input taxes can instead be used as deductible expenses under Corporate Income Tax (CIT).
 

[timendres]

6 minutes ago, lkn said:

The reimbursable amount is the difference between input VAT (purchases) and output VAT (sales). For a succesful business, output VAT should be larger than input VAT, so you end up paying VAT.

So businesses pay VAT. Thank you.

[lkn]

19 minutes ago, timendres said:

So businesses pay VAT. Thank you.

Of their sales, yes — But consumer spending is down, and the RD claims VAT collection is up. I was asking why and you seemed to say this was “paid by businesses”, but in these times, businesses will pay less VAT or even get VAT reimbursements (because they are likely to have a deficit with reduced income/sales and thus collected VAT).

 

Also, don’t pretend I have said that no VAT is ever paid by businesses. My comment #21 above very clearly says “A business pays VAT (to the government) on all their sales […] but a business get reimbursed […] so effectively no VAT is collected for B2B transactions”.

[timendres]

5 minutes ago, lkn said:

so effectively no VAT is collected for B2B transactions

Since my company performs software development, I pay 7% VAT on every baht invoiced to Thai companies. Many companies fall into this category. Meanwhile every other company pays 7% on the Value Added. Hence, we have answered your original question.

[lkn]

27 minutes ago, timendres said:

Since my company performs software development, I pay 7% VAT on every baht invoiced to Thai companies. Many companies fall into this category. Meanwhile every other company pays 7% on the Value Added. Hence, we have answered your original question.

 

No, my question has not been answered.

 

Economic activity in Thailand is down. Consumer spending is down, production is down, government spending down, everything down down down!

 

Yet somehow, RD collected 4.6% more in VAT. Something must be up *a lot* to compensate for all that missing VAT on consumer spending, cars, motorcycles, etc.

 

You are right that in all the categories listed “business spending” wasn’t explicitly mentioned, but when production is down, agriculture is down, etc. then it is highly unlikely that business spending can explain the extra VAT collected. Also remember, your software company also charged VAT last year, so that it is “business as usual” for your software company does not lead to an *increase* in VAT collected.

 

Edit: Furthermore: As for your company charging VAT to another business, it is the *other* business that can then get a refund for the VAT that they paid to you (given that they do not themselves have VAT income exceeding their VAT expenses).

 

So if your company collected a million baht in VAT for sales to other businesses, and those other businesses had no income, then that million will simply be given back to those other businesses (although the RD will probably scrutinise them for why they have no income, but given the numbers from first post, currently it look like many businesses will have much reduced income)

 

Edited April 1, 2020 by lkn