Thai govt cancels VAT exemption for low-priced imported goods

The digital economy’s growth in Thailand led to a surge in trade on foreign online platforms, which has caused considerable disruption for local businesses. The local market has been flooded with cheap Chinese products, putting domestic entrepreneurs at a disadvantage and unable to compete on price. This situation has prompted many to fade away, compelling the government to take action.

The Finance Ministry recently ruled to cancel the value-added tax (VAT) exemption for low-priced goods. Previously, imported goods sold for less than 1,500 baht (US$40) per package were exempt from VAT and import duties. The move aims to promote fairness between domestic and foreign businesses and not increase tax revenue, according to Theeraj Athanavanich, Director-General of the Customs Department.

Starting in May, the Customs Department is collecting VAT for imported goods sent via postal services, regardless of the value of the goods. This change is expected to level the playing field for local products and domestic businesses, according to Paul Srivorakul, Group Chief Executive of aCommerce, a leading e-commerce enabler.

However, he also warned that the new duties on lower-value goods might introduce complexity in customs processes, potentially slowing down the importation of goods and impacting businesses reliant on imported products.

The tax collection system is already in place for individuals who import such goods from abroad and have them sent via postal service. A tax notification is sent to the recipient’s address, stating the tax obligation. The recipient must then make the tax payment to the department before collecting the goods from the post office.

Despite the move, some experts argue that the 7% VAT on cheap imported goods, mostly from China, might not deter the influx of products because their production costs are significantly lower. According to Aat Pisanwanich, an independent analyst on international trade, even with the additional 7% tax, Chinese goods remain cheaper than similar goods produced in Thailand.

Imported goods

Aat suggested that relying solely on tax measures is not the ultimate solution to protect domestic producers. It is necessary to complement tax measures with other actions, such as controlling the standards of imported goods to ensure they meet domestic standards or have good agricultural practices (GAP) standards, among others.

The implementation of this VAT policy could have some impacts that might affect bilateral relations between Thailand and China. Therefore, related ministries and state agencies should examine the related agreements between the two countries, according to Kulthirath Pakawachkrilers, president of the Thai e-Commerce Association.

Nonetheless, the flood of cheap Chinese goods is causing significant disruption in various industries in Thailand, particularly the steel industry. Chinese entrepreneurs are now establishing steel production plants within Thailand, importing raw materials and machinery from China, and selling their steel at lower prices.

As a result, Thai-owned steel plants currently operate at only 30% capacity because they cannot compete with the prices of Chinese steel, reported Bangkok Post.

If Thailand doesn’t implement any additional measures to help Thai entrepreneurs, it is believed that no more than five years from now, Thai entrepreneurs will completely vanish, according to Aat.