Luxury tax: Heinecke congratulates Thai govt for its business savvy

[yourauntbob]

So they want to get rid of the one tax that actually brings in money and is disproportionately taxing the rich. I tend to be a conservative but the luxury tax in Thailand is one I agree with, without it Thailand's high society would pay basically nothing in taxes. There are multimillion dollar businesses here operating as "nonprofits" (I know a couple but will not name them) and cheating the tax man is a national sport. Compounding the problem, Thailand is a cash society so there is basically no way to track most transactions.

I just want to know how they plan to make up the revenue. Again, I am as conservative as they come but in this case I disagree taking this tax away.

Hair Club guy, people will avoid and evade taxes when it costs less to NOT pay than it does TO pay. In other words, if taxes are lower, people are more likely to pay them and move on. Avoid the risk and trouble of not paying. If taxes are extremely high, people will figure out ways to not pay. If the goal of government is to collect the maximum amount of tax revenue, then lower tax rates will accomplish it. If the goal is to oppress and control their citizens and guests - well then, that is what it is. Heinecke is right, stimulate business and bring more overall business in.

I agree with you on many of your points, but luxury tax on imports is one of the hardest to avoid. The only way to avoid them is to fly overseas, buy the stuff, and bring it back. How many people do you know that will go through the expense of all of that to secure a few purses, watches, or whatever they are in the market for? Many people purchase these things when they are traveling, but I know few who fly overseas specifically for the purchase. So the cost of "evading" (i think you mean avoid) is much higher than to pay the tax in this instance. Hence, lowering these taxes will not increase revenue. By the way, they are talking about "abolishing" the tax, not reducing it. How would this bring in more revenue?

[Thai at Heart]

Great that the finance ministry has said they have absolutely no plan to implement this idea then...

[allan michaud]

So they want to get rid of the one tax that actually brings in money and is disproportionately taxing the rich. I tend to be a conservative but the luxury tax in Thailand is one I agree with, without it Thailand's high society would pay basically nothing in taxes. There are multimillion dollar businesses here operating as "nonprofits" (I know a couple but will not name them) and cheating the tax man is a national sport. Compounding the problem, Thailand is a cash society so there is basically no way to track most transactions.

I just want to know how they plan to make up the revenue. Again, I am as conservative as they come but in this case I disagree taking this tax away.

For world class tax dodging see the US and UK in particular.

While I agree with taxing the crap out of the rich, I can see the point of this though. Up to 2006 or 07 when they upped the tax on camera equipment (my line of work) I was buying my equipment in Thailand, then the prices jumped up by 25% and I have since gone elsewhere. Now I don't even have to travel as shops in Cambodia can get most of what I need at almost the same prices as Singapore or elsewhere. Thailand has lost a lot of business from me, I'm talking hundreds of thousands and I am only small fry.

[khunken]

Although I would love to see a drop in the tax or duty on wine, methinks Mr Heinecke is using very doubtful economic arguments for what would benefit his own companies.

He has joined the self-serving Thai business club.

[smutcakes]

As I said on a previous thread anyone who works in business here knows that despite everyone acknowledging the corruption, people are very satisfied with how the PTP are moving things forward. The predominant whining on anything PTP on TVF shows how disconnected most are from the general mood of the Thai people.

[cloghead]

of course, he and the minor group would be directly affected by a drop in the luxury tax, he is just brown nosing

Yeah...right. And look where it got him:

http://www.forbes.com/profile/william-heinecke/

[yourauntbob]

So they want to get rid of the one tax that actually brings in money and is disproportionately taxing the rich. I tend to be a conservative but the luxury tax in Thailand is one I agree with, without it Thailand's high society would pay basically nothing in taxes. There are multimillion dollar businesses here operating as "nonprofits" (I know a couple but will not name them) and cheating the tax man is a national sport. Compounding the problem, Thailand is a cash society so there is basically no way to track most transactions.

I just want to know how they plan to make up the revenue. Again, I am as conservative as they come but in this case I disagree taking this tax away.

For world class tax dodging see the US and UK in particular.

While I agree with taxing the crap out of the rich, I can see the point of this though. Up to 2006 or 07 when they upped the tax on camera equipment (my line of work) I was buying my equipment in Thailand, then the prices jumped up by 25% and I have since gone elsewhere. Now I don't even have to travel as shops in Cambodia can get most of what I need at almost the same prices as Singapore or elsewhere. Thailand has lost a lot of business from me, I'm talking hundreds of thousands and I am only small fry.

Agreed, and lowering the tax a bit might be in order. Incentives do matter but I dont think they should "abolish" the tax.

[jayboy]

Although I would love to see a drop in the tax or duty on wine, methinks Mr Heinecke is using very doubtful economic arguments for what would benefit his own companies.

He has joined the self-serving Thai business club.

He has always been a member and though a very talented and intelligent man has played by the let us say quite flexible Sino Thai rules.What is more he has all the right connections.Look at his board at Minor Group - tells one all one needs to know though probably only those well versed in high level Thai business would understand why (which would exclude almost all present company I imagine)

The fact that his proposals would benefit his company seems to me neither here nor there.He is speaking on behalf of his industry, perfectly acceptable.

I would have thought any reduction in the preposterous price of decent wine made good sense for Thailand

[Sydebolle]

Well, a few things to be added for those who were not around then. Heinecke's emporium Minor was almost broke 15 years ago (1997) and at the brinks of having to sell his last remaining asset, a substantial shareholding in "The Regent" (today called Four Seasons hotel) and the vultures were waiting with open wings.

He then pulled that remarkable hat trick with Pizza Hut; possibly the smartest move to kick the Americans (Tripod or something like that) in their face. He had to return the brand whereas all the outlets were rented to Pizza Hut by another entity which belongs to him.
Latter just terminated those leases and Pizza Company moved into former Pizza Hut premises. A big tip to the hat for that one.

As far as luxury shoppers from overseas are concerned: rid the airport and the shopping centre taxi ramps of all those crooks offering "services", curb the trade with counterfeit goods and clean up the duty free area within Swampy of all those other crooks blackmailing foreigners of "stealing" duty free items. Pricing in Thailand is, despite the VAT-refundability (which is like the rest in this country complicated), highest in pricing. Malaysia has neither import duty (5%) nor VAT (+7%) on i.e. watches.

The Pendulums, Trocaderos and the Hour Glasses are respectable professionals in the trade but fighting counterfeiting like the brand owners (which they represent). I.e. Cartier and Rolex are available here but only as covering the map. Their reference markets (i.e. where Thais compare with and ultimately shop) are Hong Kong and Singapore. The latter's reference markets are Tokyo, London, Geneva, Paris and New York. No rocket science here.

As far as wines are concerned; Minor group is hardly affected except possibly Pizza Company and Sizzler where wine sales is - indeed - of MINOR importance. But yes, even Bill Heinecke might be puzzled to pay THB 850 for a cheap 2 litres wine which is sold in Europe as cooking with at EUR 4 (or THB 160), latter including the profits for the maker, bottler, caser, forwarder, wholeseller, retailer and the government taxes too. A "little" mark-up of THB 790 would see only an additional seafreight cost element of - say - THB 90 which still leaves a juicy THB 700 (or USD 22/EUR 18) difference. And we're talking here cheap wine or "2 litres happiness for the elderlies from Walmart"!

The latest alcohol (specially the wine) duty increases serve only the very same legislative people. Wait for the wine smugglers to show up with their "special offerings" like in Pattaya done already. Other restaurateurs - who could afford it and had the necessary cash - just increased their stock; some purchased wines lasting until next low season and hence benefit of:
a) cheaper purchase and sales at increased price explanation (well, sorry, the taxes went up)
do not expose themselves to extortion and blackmailers as they did not purchase smuggled, i.e. untaxed, booze (similar to the music license scams)

Doing business here is getting more challenging by the day - to say the least. Poorly qualified and insufficient manpower, corruption on grassroot level, poor infrastructure (waste management, electricity shortages and a government screwing around with SMEs on taxes and licenses make business here the longer the less attractive. Instead of concentrating on increasing business volume by innovation, high service level and exclusivity one has to fight an uphill battle against all odds. I, for one, am selling out my business coming high season at any price and will never get involved in a business relying on either local staff nor local suppliers, I clue ya!

[timewilltell]

So they want to get rid of the one tax that actually brings in money and is disproportionately taxing the rich. I tend to be a conservative but the luxury tax in Thailand is one I agree with, without it Thailand's high society would pay basically nothing in taxes. There are multimillion dollar businesses here operating as "nonprofits" (I know a couple but will not name them) and cheating the tax man is a national sport. Compounding the problem, Thailand is a cash society so there is basically no way to track most transactions.

I just want to know how they plan to make up the revenue. Again, I am as conservative as they come but in this case I disagree taking this tax away.

Hmm but different problems demand different solutions. Rich Thais pay little tax because ofte corruption. Fix that then but don't mix it up with the reasoning that luxury ax can compensate.

[nisakiman]

This is a great idea,cut taxes ,while the debit keeps mounting !,

I don't think tourists would come to Thailand just to shop for

luxury goods, it would always be in the back of your mind,is this

product genuine,with all the counterfeit products about here.

regards Worgeordie

@worgeordie: In general I agree with what you say, but your understanding of tax policies and how it rates to revenues for the state is lacking.

Economists gauge the price's effect on demand as "elasticity". Luxury goods, by definition, are high elasticity products, which means their demand decreases sharply with increasing prices.

Basic economic theory proves that luxury taxes produce a net negative benefit because of losses due to reduced economic activity. It is the exact equal and opposite of minimum wage policies. Both are politically attractive but both result in net losses to society.

Absolutely right. It's known as 'The Laffer Curve'. whereby there is an optimum point in the amount of duty (or income tax, whatever) charged which will maximise the tax take for the government. Once they levy duty / raise income tax beyond this point, then the tax take will start to fall.

http://www.forbes.com/sites/danielmitchell/2012/04/15/the-laffer-curve-shows-that-tax-increases-are-a-very-bad-idea-even-if-they-generate-more-tax-revenue/

[noitom]

Heinecke forgets the customer service and class that comes with luxury goods sold on these other venues. Heinecke also forgets the taint on Thailand for its pervasive counterfeit goods in handbags, watches, and other designer merchandise. High style and designer brands in Thailand in the big time malls like Paragon and Emporium are merely outlets for the Thai rich. They rarely if ever pay rent on their locations and are merely show pieces to draw the Thai rich and a hand full of foreigners.

Except the facts do not support what you say.

Emporium, Paragon, Gaysorn, Central Embassy luxury floor rents are almost the highest in Thailand (around 2,500-3,500b per sqm, only lower than the airport (also selling luxury goods) and interestingly, MBK (because of the small spaces).

Around 50% of luxury brand sales CURRENTLY are to overseas clients, including Japanese, Chinese and Indians mostly. This is based on luxury goods research and if you visit ANY of the stores and ask, this is in the ballpark of how they will answer.

Research further demonstrates that SOME luxury buyers like buying in Thailand for the service they receive; now this is far from universal and others have major problems with the service received in certain markets; however I would put Pendulum, Hour Glass and Cortina up against any of the watch retailers in Singapore/HK for service (as a buyer). Many friends from HK and Singapore agree similarly.

There are massive counterfeit problems in Singapore, HK, China....all of which are luxury goods centers - I do not really believe that people buying counterfeit LV bags would also buy genuine ones, for the most part (yes some would, but a minority). While I know that this is a problem here, it is NOT a problem for the luxury brands, who are expanding substantially here - look at LV - from 1 store in Oriental to now 4 stores, and more on the way. Central Embassy, Emporium 2, etc etc are all being built on the basis that there is luxury goods demand beyond what the existing shopping centers can deliver. It's just that some of the brands want more (why give away tax when you can add margin) because some believe in price parity across the region. Hence the mantra: 'lower the luxury tax'.

Thailand is fairly competitive price wise in luxury watches, for example. Less competitive in leather goods. Vs Hong Kong there is almost price parity, and certainly with sales and on top credit cards for local buyers; international buyers get the VAT back also. Singapore and Malaysia slightly cheaper, but not everyone likes going abroad to buy a Boss suit for instance. More room for negotiation sometimes in Thailand, but it is item by item (for instance a beast of a Panerai in rose gold with perpetual calendar (from memory) is substantially more expensive here than in HK.)

The issue of continuing with a tax regime on things like wine is that it is NOT a rich tax at all; the truly rich (as well as alledgedly some of the wine importers) just bring it over the border and pay a fee to corrupt customs officials, resulting in the state getting no revenue at all.

For luxury goods, the tax is low and close enough that Thailand is almost competitive. Being that Heineke does Tumi, Zuma and a few other luxury brands, he obviously is going to state something that is helping his own business of luxury hospitality, retail and less so on the food (although he may have some idea on the wine side). Being that he is publically listed, my guess is he cannot play like some of his competitors and engage in parallel importing of wine, which would make his Zuma enterprise more difficult.

Leading out with a comment like 'the government are a pack of morons, now please lower the luxury tax' would probably not achieve what he wants.

It doesn't matter what the "stated" rent is, if the big name designer brands are given prime location occupancy for a percent of sales rather than fronting a lease. The logic of this in Thailand upper tier malls was to use these designers as "draws" to attract traffic.

I would hesitate to rely on feedback from in store Thai personnel when responding to questions about their shoppers and business. However, I am certain that Japanese represent a larger segment of high class designer shopping in Thailand than let's say Russians, Poles or Israelis.

[Thai at Heart]

If there is one thing above all I have heard high ends friends of mine moan about during their visits is the price of wine.

It's idiotic.

Edited October 1, 2013 by Thai at Heart

[GrantSmith]

Minor is also behind the Anantara group of hotels (among other ownership holdings in properties like the Four Seasons) so it does make sense that he is offering his advice...

This tax just lends itself to see who can put the biggest fix in and not get caught, I've heard of numerous ways to do it by way of various FTA clauses but I must have missed something in the FTA's that mentions this...

[Morakot]

This guy might not want to start "counting his chickens" just yet.

I'm sure he doesn't. The "diplomatic" congratulations might as well be a polite warning to nugget into a specific direction.

Edited October 2, 2013 by Morakot

[Briggsy]

Thai Beverage will be on the phone within 5 minutes squashing this idea. Unless, of course, they can be sole importer and distributor.

[GrantSmith]

Thai Beverage will be on the phone within 5 minutes squashing this idea. Unless, of course, they can be sole importer and distributor.

It's actually already a requirement of the Excise Department that importers/distributors are exclusively importing/distributing products.

[steveromagnino]

It doesn't matter what the "stated" rent is, if the big name designer brands are given prime location occupancy for a percent of sales rather than fronting a lease. The logic of this in Thailand upper tier malls was to use these designers as "draws" to attract traffic.

I would hesitate to rely on feedback from in store Thai personnel when responding to questions about their shoppers and business. However, I am certain that Japanese represent a larger segment of high class designer shopping in Thailand than let's say Russians, Poles or Israelis.

I am heavily involved with several luxury brands and shopping centers, and have access to some knowledge of who shops where. I stand by my comment; that foreigners make up a substantial portion of buyers, around 50% in general.

Regarding rents, I believe that the vast majority of standalone stores pay rent, fixed or fixed with a very small proportion on turnover - this holds true for Central Embassy, Paragon, Emporium, Gaysorn, Oriental Hotel LV store, Erawan (although this might have changed subsequently, but I doubt it). I will preface this, with 'as far as I know' in some cases, as I have not negotiated regularly with every landlord of this group within the last 3 years.

Shop in shop is usually entirely on turnover, but there are not so many of these - Central Chitlom would be one, and of course the cosmetic counters and watch counters in Central Chitlom and Paragon. And the top tier brands aren't doing shop in shop so much now.

LV for instance does not need to lean on a landlord to manage their rent down to be variable; rather they just say outright what they want in terms of location (they pick first in general) for their portfolio of brands, and then negotiate the rent down for usually longer periods than normal. Which is running around 2,400 - 2,700b per sqm at the moment on prime luxury space in Bangkok for them, and probably around 2,700 - 3,500b per sqm for the next tier of brands and for watches/jewellery who tend to pay more. Except Central Embassy, where rents are higher again, as this is a new center, albeit one that currently does not have LVMH represented AFAIK.

The luxury brands do not like GP arrangements as they do not like disclosing sales figures nor do they wish to open their books to anyone where possible since then their sales become readily available to competitors and the tax department among others. It is possible Gucci and the other Central controlled brands are not like this, but even that would be a stretch to believe given that the group tends to operate each entity separately to some degree.