Thailand to Scrap Luxury-Goods Tax to Lure China Travelers

Thailand to Scrap Luxury-Goods Tax to Lure China Travelers

Thailand’s government said it will scrap import duties on luxury watches, clothes and cosmetics to help the country compete with Hong Kong and Singapore for wealthy travelers from markets including China.

The duty on some luxury goods will be cut to zero from 30 percent by the end of the year, Permanent Secretary for Finance Areepong Bhoocha-Oom told reporters in Chonburi province. Thailand’s SET Index jumped 3.6 percent, as Minor (MINT) International Pcl led gains among tourism-related stocks on optimism the tax reduction will boost travel demand.

The government expects tourist arrivals to surge 18 percent to 26.4 million this year, helping to counter a slump in exports and domestic consumption that may cause the economy to grow as little as 3.8 percent. Thailand’s tourism and services industries account for 50 percent of gross domestic product.

“We will do it fast because we want it to help boost the economy this year,” Somchai Sujjapongse, head of the finance ministry’s Fiscal Policy Office, said today by phone. “Apart from buying luxury products, they will also buy our local products. We also hope wealthy Thai people will buy luxury items in Thailand instead of flying to Europe to make purchases.”

Shares of hotel operator Minor rose 10 percent, their biggest gain since May 4. Central Plaza Hotel (CENTEL) Pcl jumped 6.5 percent and Thai Airways International Pcl (THAI) advanced 7.7 percent, the most since October 2011.

‘Strong Earnings’

“The tax cut on luxury goods would add a new catalyst for Thailand’s tourism sector,” Itphong Saengtubtim, the head of research at KGI Securities (Thailand) Pcl in Bangkok, said by phone today. “Tourism-related companies still have strong earnings outlook as growth in foreign visitors has been unaffected by global economic slowdown.”

Chinese tourists, who spent $105 billion overseas in 2012, are forecast to make 94 million trips this year, almost double the level in 2009, according to the China Tourism Academy.

Thailand’s tourist arrivals increased 16 percent to 22.4 million last year, according to government data. The number of visitors from China surged by 62 percent to 2.8 million.

Singapore attracted 14.4 million visitors last year, according to preliminary government figures. Arrivals from China increased 23 percent to 1.5 million in the first nine months of last year, according to the most recent data. The Singapore government expects arrivals to increase to as many as 15.5 million this year.

Lower Costs

“We can easily compete with Hong Kong and Singapore,” Tos Chirathivat, chief executive officer of Central Retail Corp., said today in an interview. “Our infrastructure, our malls are the same or better. We have more. The service is good. The rental cost is lower and labor cost is lower.”

Thailand will initially cut import duties on some luxury goods to between zero and 5 percent, from 30 percent, said Somchai from the finance ministry. The government will discuss the plan with local retailers to ensure they aren’t adversely affected by the measure, he said.

“We may lose some revenue from the tax cut, but I don’t think it will be a lot,” Somchai said. “We will in turn get more from VAT and other taxes.” Thailand levies a value-added tax of 7 percent on goods and services, the same level as Singapore’s goods and services tax.

Deputy Finance Minister Benja Louichareon said today that the ministry is concerned the tax cut will hurt local producers, so must be carefully considered.

“We need to see figures from the revenue department on how much is the VAT refund from tourists buying products in Thailand,” she told reporters. “If it’s a lot already, there is no need to do additional measures.”

Somchai said visitors from China were a key target of the plan to lower import duties.

“Thailand sits right in the middle,” said Tos of Central Retail. “If we look at India, China, Hong Hong, Singapore, whatever, within three-to-six hours flight, people can come easily for the weekend.”

Thanks to Lorre White