Festive shopping tax break could cost ALL OF US in long run

The government has hit a dead-end in its search for new short-term measures to shore up the recovering economy in the last quarter of this year, which may result in a depressed multiplier effect for the Kingdom’s GDP growth.

Prime Minister Prayut Chan-o-cha’s administration announced tax breaks for festive shoppers at the Cabinet meeting on Tuesday.

The measure comes on top of the Bt30,000 in deductible tax-expenses on tourism and travelling.

The shopping bonus was granted for taxpayers who buy goods and/or services of Bt15,000, who will have the tax deducted from their annual income tax returns according to their earnings.

For example, if your annual income is Bt1,5 million – which is subject to the maximum 20 per cent rate – you will receive Bt3,750 in tax refund if you spend Bt15,000 on goods in one go. In short, one can ask for maximum refunds ranging from Bt750 to Bt5,250 based on one’s personal income tax rate.

Details of the measure are almost the same as that corresponding scheme launched last year, except the shopping tax break lasts 10 days longer this year, effective from Wednesday to December 31.

Last year’s festive tax break saw consumer spending boosted by Bt9 billion, while the government lost total income tax of only Bt1.2 billion.

This year, the authorities expect a Bt20 billion boost in consumer spending during the final month, driving the estimated GDP growth rate from 3.1 per cent to 3.4 per cent for the last quarter and making an estimated average growth for the full year of 3.3 per cent. Thailand’s GDP growth rate in 2015 was 2.8 per cent.

Some experts criticise the measure, saying it will not only waste the state funds but also likely minimise the multiplier effect on GDP growth given that fewer consumers will spend money over uncertainty at the state of the global economy.

This year’s shopping tax break also merely repeats last year’s scheme, meaning the novelty for shoppers may have worn off. About four million taxpayers are believed to have benefited from last year’s shopping tax incentive, but that figure could fall this year. For instance, those who earn annual income of less than Bt300,000 will receive a maximum of only Bt750 in tax refund if they spend Bt15,000. That rate is too low to lure them to spend big.

Meanwhile, the list of goods and services not on the tax-exempt list is long and includes cars, motorcycles, boats, gold bullion, alcohol, insurance, surgery, fresh food, books and magazines, duty-free goods, fuel, and out-bound tours.

If people with high purchasing power want to save rather than to spend, the multiplier effect – whereby the government injects money to boost consumer spending and drive the economy – will be low. It appears that this government measure might not be worth the money, after all.