Inflation could be worry if VAT jumps to 10% next year, experts say

[Lite Beer]

Inflation could be worry if VAT jumps to 10% next year, experts say
Business reporters
The Nation

A woman shops at an outlet of a major retailer.

BANGKOK: -- A rise in the value-added tax (VAT) to 10 per cent, scheduled to go into effect next year, has given rise to worries about inflation getting worse.

Revenue Department director-general Prasong Poontaneat said his agency stood to garner Bt201 billion more in tax revenue if VAT was increased to 10 per cent. However, the burden would be on consumers, who would end up paying more for goods and services.

These comments came after the National Council for Peace and Order (NCPO) announced that it would maintain VAT at 7 per cent for a year from October 1, 2014, to September 30, 2015, after which it would be increased to 10 per cent.

The reason is that it wants to boost domestic consumption and economic growth.

VAT is added to a product's price at every stage until it lands in the hands of the consumer, who pays the final tax. It was implemented in 1992 to replace the business tax. By law, consumers are required to pay 10 per cent VAT, but it was reduced to 7 per cent and several governments have maintained it at this rate for many years.

Benjarong Suwankiri, first vice president and team head of TMB Analytics at TMB Bank, told Nation TV yesterday that the plan to increase the VAT rate did not surprise him, though he was not sure the economy was strong enough to handle a jump to 10 per cent all at once. He suggested the rate should instead be gradually increased at 1 percentage point at a time.

The country has learned that every time consumption was expedited, a slowdown followed, he said.

Charl Kengchon, managing director of Kasikorn Research Centre, said: "The NCPO has sent a strong signal to consumers and businesses that it wants to carry on [stimulating] the economy in the second half of this year, as the economic figures in the first half did not show the recovery that was expected."

KResearch said the NCPO had allowed one year for people and businesses to prepare for the VAT increase, which should mitigate the shock to their spending power.

He pointed to Japan, which raised its consumption-tax rate in April. Japanese people stocked up with goods before the VAT hike, which spurred the flow of cash into the economy.

In Thailand, however, when the VAT rate jumps to 10 per cent, inflation will become a worry. But if the increase goes into effect in the fourth quarter of 2015, the inflation should not be seen until 2016.

GDP growth

"Based on the assumption of GDP growth at 4-5 per cent, the VAT hike next year is unlikely to have an impact on consumption," said Charl, adding that moreover, the Finance Ministry planned to adjust tax structures including tax deductions for some items to reduce the burden on individuals.

Commerce Ministry permanent secretary Chutima Bunyapraphasara believes that the rise in VAT will be made when the country's economy is strong.

"With a growing economy, Thai consumers should be able to shoulder a higher cost of living," she said.

Somchai Pornrattanacharoen, president of the Thai Wholesaling and Retailing Association, said the prices of goods and services would definitely rise after the VAT rate goes up, but it was too early to tell how much.

Source: http://www.nationmultimedia.com/business/Inflation-could-be-worry-if-VAT-jumps-to-10-next-y-30238910.html

-- The Nation 2014-07-19

[BSJ]

"The reason is that it wants to boost domestic consumption and economic growth."

Can't see it! Other factors may, but increasing tax isn't one of them.

[smileplur]

VAT is added to a product's price at every stage until it lands in the hands of the consumer

Could someone who is more knowledgable about this than I am elucidate this statement for me? It seems that the same goods are being taxed over and over again at a static rate which doesn't make any sense. Does that mean the ingredients used to make a product are taxed at the wholesale level when sold to a manufacturer. Then, they are taxed again when a final product is sold to a retailer. Then, tax is paid again when the consumer buys the final product? As labor becomes increasingly specialized, small firms begin to produce smaller components and parts with greater efficiency than one large company. With this VAT system, it removes the incentive for specialization of labor. Therefore, it seems arguable that it goes against market principles in terms of efficiency. Furthermore, manufacturers and big business will certainly not absorb any of these costs. They are all built into the price and passed on to the consumer. So, consumers are paying all of the business tax. It makes sense from the perspective that the tax is only paid for products that are purchased and therefore in demand by the economy. However, it does go against specialization of labor.

Do I have this all wrong?

[dcutman]

If the govt is going to increase the VAT by 30%, give the poor a break and at least remove the VAT from unprepared food items.

[dcutman]

VAT is added to a product's price at every stage until it lands in the hands of the consumer

Could someone who is more knowledgable about this than I am elucidate this statement for me? It seems that the same goods are being taxed over and over again at a static rate which doesn't make any sense. Does that mean the ingredients used to make a product are taxed at the wholesale level when sold to a manufacturer. Then, they are taxed again when a final product is sold to a retailer. Then, tax is paid again when the consumer buys the final product? As labor becomes increasingly specialized, small firms begin to produce smaller components and parts with greater efficiency than one large company. With this VAT system, it removes the incentive for specialization of labor. Therefore, it seems arguable that it goes against market principles in terms of efficiency. Furthermore, manufacturers and big business will certainly not absorb any of these costs. They are all built into the price and passed on to the consumer. So, consumers are paying all of the business tax. It makes sense from the perspective that the tax is only paid for products that are purchased and therefore in demand by the economy. However, it does go against specialization of labor.

Do I have this all wrong?

Technically wholesalers and manufacturers should not be building in the VAT in to their price as they are to able to recover 100% of that cost through the write off on their taxes.

Note, I only said technically.

[apetley]

If the govt is going to increase the VAT by 30%, give the poor a break and at least remove the VAT from unprepared food items.

Increasing the rate from 7% to 10% is a rise of nearly 43% and like you say is a sure fire way to hit the poorest people hardest.

[jaltsc]

"A rise in the value-added tax (VAT) to 10 per cent, scheduled to go into effect next year, has given rise to worries about inflation getting worse."

From the photo above, it looks like they could add 20 per cent to skin whitening products and no one will complain. It appears that these products rival water and air as necessities of life.

[AyG]

Given that only about 3 million people pay income tax in Thailand, this seems like an excellent way of bringing in more revenue for the government. Much fairer than clobbering the middle class with more income tax, and harder to avoid.

[AverageAussie]

VAT is added to a product's price at every stage until it lands in the hands of the consumer

Could someone who is more knowledgable about this than I am elucidate this statement for me? It seems that the same goods are being taxed over and over again at a static rate which doesn't make any sense. Does that mean the ingredients used to make a product are taxed at the wholesale level when sold to a manufacturer. Then, they are taxed again when a final product is sold to a retailer. Then, tax is paid again when the consumer buys the final product? As labor becomes increasingly specialized, small firms begin to produce smaller components and parts with greater efficiency than one large company. With this VAT system, it removes the incentive for specialization of labor. Therefore, it seems arguable that it goes against market principles in terms of efficiency. Furthermore, manufacturers and big business will certainly not absorb any of these costs. They are all built into the price and passed on to the consumer. So, consumers are paying all of the business tax. It makes sense from the perspective that the tax is only paid for products that are purchased and therefore in demand by the economy. However, it does go against specialization of labor.

Do I have this all wrong?

Yes, you're missing something..

The manufacturer is able to claim back the VAT paid on his inputs when remitting the tax on the value of his outputs. Effectively then, tax is only paid on the "value added" at each stage of production.

At the end of the line, final consumer can't claim back so the tax being paid is on the full value.

[Ricardo]

The government has got to raise the money, to pay off all those bonds/loans, with which the previous administration financed the rice-scheme. Can't keep rolling-it-over forever !

Also there are the write-offs, for rotten & missing stocks, to be cleared.

TANSTAAFL

[fab4]

The government has got to raise the money, to pay off all those bonds/loans, with which the previous administration financed the rice-scheme. Can't keep rolling-it-over forever !

Also there are the write-offs, for rotten & missing stocks, to be cleared.

TANSTAAFL

Then there's the 3 Trillion Baht's worth of Populism Projects to pay for...................

[BuaBS]

Just like Japan , their shiny example. Ask the Japs what it did for their comsumption....

Buy more on the market , black economy , no taxes.

At least they are not following the socialist nanny/police states where the tax is around 20 % !

[worgeordie]

The government has got to raise the money, to pay off all those bonds/loans, with which the previous administration financed the rice-scheme. Can't keep rolling-it-over forever !

Also there are the write-offs, for rotten & missing stocks, to be cleared.

TANSTAAFL

Then there's the 3 Trillion Baht's worth of Populism Projects to pay for...................

And no one will be ever held responsible for the black holes that are populist

projects,they were just vote buying with the Thai peoples money.

regards Worgeordie

[worgeordie]

Inflation is a worry now, never mind when the VAT increase happens,

anyone with money in the bank is in negative territory,as the rates of

interest earned are below inflation [thats the real rate ,not what the Govt

says it is].

regards Worgeordie

[Ricardo]

The government has got to raise the money, to pay off all those bonds/loans, with which the previous administration financed the rice-scheme. Can't keep rolling-it-over forever !

Also there are the write-offs, for rotten & missing stocks, to be cleared.

TANSTAAFL

Then there's the 3 Trillion Baht's worth of Populism Projects to pay for...................

Isn't it wonderful, how unconcerned politicians (of any hue) become about government fiscal-prudence, when there's an election to be bought !

Personally I also wonder, and would like to be better-informed, about bond-repayments arising from the aftermath of the asian financial-crisis. When/how will they fall due, following the early-repayment of the IMF-loan(s) ? But that's another subject.

Back on topic, raising VAT from 7% to 10% would also seem fairly cavalier, and not good news for business-confidence or growth, if it actually happens.

Then again, a weaker Baht would suit my own personal finances, and that of many other farangs I suspect ?

[useronthenet]

This rise was certainly on the cards, and in line with many other Asian countries.

The rise in inflation is primarily to do with public borrowing on all levels, and to the fact that many don't pay their tax and put into the pot.

The days of Thailand being a cheap country are almost at an end.

[Thai at Heart]

If the govt is going to increase the VAT by 30%, give the poor a break and at least remove the VAT from unprepared food items.

Agricultural produce is VAT exempt

[Thai at Heart]

I reckon they will eventually cut various other taxes and raise VaT considerably

There is so.much tax evasion and cash business that by raising VAT to a higher level you close the supply chain to cash business.

[Basil B]

They have it hard don't they...

20% on top of 20%+ income tax and then there is council tax too in the UK...

[nong38]

Yakult has gone from 5bts to 7bts, only 2 bts granted but %wise its a biggy and all I hear when I go to buy is "price up" and that makes it alright, inflation has been rising all year and not by the usual government low levels. The root of a lot it was the ever popular 300bts a day rate, which everyone thought they were going to get only to wake up and find it applied to a select bunch of people who happened to have a reasonable job in the first place........." and if anyone asks you get 300bts a day........or you aint got a job ext week.......understand!"

A Vat tax will catch all and sundry and that way it is fair, the rich can handle it better than the poor though so it will impact more on the less well off in society.

A rise to 10% is a 25% increase no wonder they are worried about inflation and tourists will take note, regulars may look for pastures new, they are killing the golden goose, but all governments are the same you can never get enough revenue in to make the dreams come true, trouble is where they keep money is like a net rather than a safe and some of it just disappears, whats left well, as I have said before its easy to spend other peoples money.

So much for making the Thai people happy.

[brucegoniners]

This wouldn't be so big a deal if the Thai Government didn't tax imported products so dramatically.

For example, the alcohol tax is absolutely criminal! 400% on wine? Then you add VAT? Crazy, just crazy!

[kingalfred]

Government sales tax, easy way to raise money in the short term, in the long term it will screw the economy. All this extra revenue would not be needed if the corrupt practices of rice schemes etc were never started.

Sent from my iPhone using Thaivisa Connect Thailand mobile app

[DrTuner]

VAT is a drop in the ocean compared to the simple effect of jacking up the prices up the very maximum the Thais can scrap together by taking as much credit as possible.

[northernjohn]

Inflation is a worry now, never mind when the VAT increase happens,

anyone with money in the bank is in negative territory,as the rates of

interest earned are below inflation [thats the real rate ,not what the Govt

says it is].

regards Worgeordie

You bring up an interesting point that no one has mentioned in any of the NCPO dealings.

How responsible are they for these plans. It would seem to me the work and studies on them had already been done by the bureaucracy and buried by the politicians. They ghave whole lot of studies and information already done to draw on.

I guess what I am trying to say is these have not been spur of the moment decisions. There has been a lot of work already put into them.

For instance the Government is going to repatriate a lot of the Burmese. Could this not be part of a plan that has been going on for a long time. Under the pervious government the daily nutritional need was cut from 80% to 50% per day. Could not the repatriating for most of them been the plan. The NCPO is just bringing it out in the open they have not set a time schedule for it and are talking about it with the Government in Miramar.

In short is the NCPO looking at existing plans and scrapping them or OKing them and announcing their decisions rather than keeping the whole thing quiet. Waiting for the time when the spin doctors can present it as a good thing to do so the politicians will look good. Even though it looks bad now.

It is I believe a gray area and the NCPO deserves credit for putting it out there rather than hiding it. No matter how much we dislike it.

[northernjohn]

Yakult has gone from 5bts to 7bts, only 2 bts granted but %wise its a biggy and all I hear when I go to buy is "price up" and that makes it alright, inflation has been rising all year and not by the usual government low levels. The root of a lot it was the ever popular 300bts a day rate, which everyone thought they were going to get only to wake up and find it applied to a select bunch of people who happened to have a reasonable job in the first place........." and if anyone asks you get 300bts a day........or you aint got a job ext week.......understand!"

A Vat tax will catch all and sundry and that way it is fair, the rich can handle it better than the poor though so it will impact more on the less well off in society.

A rise to 10% is a 25% increase no wonder they are worried about inflation and tourists will take note, regulars may look for pastures new, they are killing the golden goose, but all governments are the same you can never get enough revenue in to make the dreams come true, trouble is where they keep money is like a net rather than a safe and some of it just disappears, whats left well, as I have said before its easy to spend other peoples money.

So much for making the Thai people happy.

You are correct the rich can handle it better than the poor.

But in the day to day reality of life it is the rich who will be buying these vat taxed items. The poor will be buying mainly food.

[northernjohn]

Government sales tax, easy way to raise money in the short term, in the long term it will screw the economy. All this extra revenue would not be needed if the corrupt practices of rice schemes etc were never started.

Sent from my iPhone using Thaivisa Connect Thailand mobile app

Well they were started and now need to be paid for.

When you use the word if you open up a whole new world of possibilities. Most of them nonsense but the word opens you up to them.

for instance if I had a time machine.

[belg]

and we all know how the retailers will add some extra % on top of the VAT and blaming the VAT only for the price increase

[hhinhh]

"The reason is that it wants to boost domestic consumption and economic growth."

Can't see it! Other factors may, but increasing tax isn't one of them.

Sure it increases consumption on the short term as everyone wants to avoid the higher tax and buys thing before the tax increase. On the medium and long term any tax increase slows down econonmy. The more tax a government collects the more power it gets. I always doubt that a government can handle money better than individuals thus no tax incease is good at all.

[Robby nz]

I wonder how much corruption affects inflation ?

Would think a fair bit.

Now if that can be got down and I think it is reasonable to say a start has been made, then the drop in corruption could well cancel out any inflation caused by a rise in VAT

Edited July 19, 2014 by Robby nz

[kingalfred]

Government sales tax, easy way to raise money in the short term, in the long term it will screw the economy. All this extra revenue would not be needed if the corrupt practices of rice schemes etc were never started.

Sent from my iPhone using Thaivisa Connect Thailand mobile app

Well they were started and now need to be paid for.

When you use the word if you open up a whole new world of possibilities. Most of them nonsense but the word opens you up to them.

for instance if I had a time machine.

um. Someone used google translate?

Sent from my iPhone using Thaivisa Connect Thailand mobile app