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[ 2015-03-21 ]

VAT to stay at 7percent for now

The central bank has cut its forecast for Thailand's economic growth to 3.8 per cent from 4 per cent due to the sluggish global economy, prompting a commitment by the government not to hike value-added tax to 10 per cent in September.

Deputy Prime Minister MR Pridiyathorn Devakula said yesterday that the government would keep the VAT at 7 per cent for another year since the economy has not yet recovered. It will expire at the end of September, paving the way for a 10-per-cent hike.

Prime Minister General Prayut Chan-o-cha echoed the deputy PM's comments made that the government would delay raising the VAT until the economy recovers.

Legally, the VAT was subject to a rate of 10 per cent, but the current VAT exemption has kept it at 7 per cent. The government had said it would not continue the tax exemption after September and intended to raise the rate possibly by 1 percentage point to 8 per cent.

The Bank of Thailand's Monetary Policy Committee (MPC) yesterday revised down its anticipation for the country's gross domestic product (GDP) growth from 4 per cent to 3.8 per cent. But the MPC still maintains the country's economic growth at 3.9 per cent for 2016.

Mathee Supapongse, assistant governor of the BOT and secretary of the MPC, said the slow recovery of both the global and the Thai economies have dampened consumer and business confidence in future income, making them reluctant to increase spending even though lower oil prices have reduced the cost of living and transportation.

Slow recovery of private spending

"The global and domestic backdrops have also made financial institutions cautious about loan extensions. Private spending is therefore expected to recover more slowly than previously assessed," he said.

Public spending still faces limitations, although it has improved. In part, this is due to government agency efficiency, which cannot be improved fast enough to match the change in budgetary structure to emphasise a larger share of investment.

Additionally, the policy to revise the cost of state construction projects to put them in line with lower oil prices caused additional delays in some investment projects, Mathee said. On the external front, the value of exports is likely to grow at a lower rate due to the weaker-than-expected global economy and the decrease in commodity prices in line with oil.

Meanwhile, the export of services is expected to steadily contribute to economic growth. The oil price decline has caused a fairly large drop in cost pressure, while demand pressure has declined slightly due to slower-than-expected economic recovery, Mathee said.

This is why the central bank's Monetary Policy Committee voted 4 to 3 on March 11 to lower the policy rate by 25 basis points to 1.75 per cent.

This was eased further in order to lend additional support to the economy as its recovery has been more sluggish than previously assessed and with a downside risk to growth. Inflation has decreased and may dip below target, the main driver is lower oil prices and thus the low inflation rate is not a sign of demand-pull deflation.

During his TV programme on Friday, Prayut expressed his concern that economic growth would be impacted by the slowdown of global economies, especially Thailand's trading counterparts, which would then have an effect on the country's exports. The slowdown even affects China with the IMF forecasting that it would experience a growth rate this year of less than 7 per cent.

"The government has accelerated to boost the country, including seeking new markets, relaxing rules and laws, and speeding up government spending in the infrastructure projects, as well as easing the burden of people," Prayut said.

He added that the government had disbursed about 48 per cent of total budget, representing more than Bt280 billion. Disbursements for investment projects were expected to reach up to 90 per cent within March.

Meanwhile, the private sector yesterday welcomed the government's decision to keep the VAT rate at 7 per cent, shrugging off another BOT cut on economic growth. However, some experts were concerned about the ability of small and medium-sized enterprises (SMEs) to do business. Supant Mongkolsuthree, chairman of the Federation of Thai Industries, said the rate cut was suitable and the maintaining of the 7 per cent VAT rate was good news for businesses that will support the economic recovery this year.

"Finding something to replace exports may be hard, but measures to boost domestic consumption can help grassroots as well as helping SMEs," he said, adding that the economy in the second half should be better driven by higher spending and public investments.

Meanwhile, Vichai Assarasakorn, vice chairman of the Thai Chamber of Commerce, and Chantana Sukhumanont, adviser of Siam City Cement, said the GDP growth cut was not significant and would have little implication on businesses.

"The private sector is rather worried about farmers and SMEs because of the falling price of farm crops while SMEs will possibly start suffering from lower spending," Vichai said.

 The Nation March 21, 2015 1:00 am