Thailand’s VAT hike: Restaurant and hotel sectors’ suggestions
A proposed increase in the value-added tax (VAT) rate from 7% to 15% has sparked significant concern among Thailand’s restaurant and hotel industries.
Although the plans for the VAT hike are now reportedly scrapped, Sorathep Rojpotjanaruch, who leads the Thai Restaurant Business Association, expressed alarm over the potential consequences this tax hike could have on the already struggling restaurant sector.
Many establishments have shut down this year, and Sorathep fears the increase could lead to even more closures.
The restaurant industry faces a unique challenge because while VAT is applied to food sales, it cannot be deducted from the purchase of raw materials like fresh produce. Sorathep highlighted the difficult position this places businesses in, as they would need to either close down or pass the increased costs on to consumers.
He projected a rise in food prices by 20 to 25% should the VAT hike be implemented.
Sorathep urged governments to rethink the proposal, suggesting that instead of a sharp VAT increase, policymakers could raise the VAT registration threshold from 1.8 million to 2.5 million baht. Additionally, allowing a 25% tax deduction for agricultural raw materials, which are currently non-deductible, could help small and medium-sized enterprises (SMEs) stay afloat.
Businesses suffer
Sorathep also criticised comparisons to European countries where VAT rates exceed 20%, noting that such comparisons ignore the differences in living costs and incomes. In Thailand, the VAT increase would not be offset by higher wages, leaving both businesses and consumers to shoulder the burden.
He warned that without the right adjustments, the proposed policy could drive more businesses out of the tax system, thereby reducing government revenue and accelerating the closure of SMEs that are already trying to survive in a challenging economic climate.
Thienprasit Chaiyapatranun, President of the Thai Hotels Association, echoed Sorathep’s concerns, noting that the VAT increase would likely discourage spending and elevate costs for hotels. For those offering fixed-rate room packages, which already include VAT, absorbing the higher tax burden without increasing rates would be particularly challenging.
Thienprasit suggested a gradual increase to 10% to be more feasible, highlighting the fragile economic recovery and cautious consumer spending as reasons for a more measured approach. He also emphasised the importance of immediate government action to stimulate spending as the new year approaches.
Thienprasit speculated that the VAT hike proposal could be a way to gauge public reaction. He called for clear communication from the government regarding the potential benefits and impacts of such an increase, stressing the need for transparency and understanding among both businesses and consumers, reported Pattaya News.
Frequently Asked Questions
Here are some common questions asked about this news.
Why might a sudden VAT increase from 7% to 15% be particularly damaging to Thailand’s restaurant industry?
Restaurants can’t offset VAT on raw materials, leading to costlier food prices or closures.
How could raising the VAT registration threshold help small businesses in Thailand?
It allows smaller enterprises to operate without the higher tax burden, aiding survival and growth.
What are the potential risks of comparing Thailand’s VAT rates to European levels?
It overlooks differences in living costs and income, potentially causing undue strain on Thai consumers.
What could be the implications of businesses exiting the tax system due to increased VAT?
Government revenue may decrease, exacerbating the economic challenges and SME closures.
What if the Thai government implemented a gradual VAT increase instead of a sharp rise?
A slower increase to 10% could ease the transition, maintaining consumer spending and economic stability.
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