The new, bolder tax incentives for the holiday season, together with extra discounts at shopping malls nationwide, are coming at the right time to boost flagging consumer confidence, economists say.
Today the Finance Ministry will seek cabinet approval for the tax breaks, which are more aggressive this year, doubling the cap on claimed value to 30,000 baht per shopper.
The shopping period will also be lengthened from last year's seven days.
A senior official who asked not to be named said the ministry has projected that the cost of the scheme will increase by just 2 billion baht from the 4 billion in tax rebates claimed from the last seven days of last year, when the cap per shopper was 15,000.
The rationale for the conservative projection is the weary state of consumer purchasing power, the official said.
"The recovery pace is very fragile so even if we face only one unexpected incident, it could have severe effects, halting the growth we see at the moment," the official said.
Sarun Sunansathaporn, an economist in the Bank of Ayudhya research department, said that it is reasonable to extend the measures both in terms of tax limit and the length of the programme to help generate growth in the period, which has already been affected by the passing of His Majesty the King.
He said the extended programme would result in a payback effect early next year, especially in spending on clothes and electrical appliances, but the sales of cars should increase in that period since some marketing events were postponed.
Mr Sarun said that the bank also expected the effects of the mourning period on tourist arrivals to recover in the first quarter, which would help ease the payback effect of the programme.
"In terms of the fiscal burden, I think the government is rather safe since the public debt to the GDP ratio remained low at only 42% and the expected improvement in CPI next year should also help decrease the ratio," he said.
Thanavath Phonvichai, vice-president for research at the University of the Thai Chamber of Commerce, agreed with the government that the current situation warranted a big booster to spur the momentum of the recovery after it was disrupted by the mourning period in October.
He said that the recovery has improved, albeit at a slow pace.
"The Thai economy so far has shown signs of weary consumption as the recovery has been extremely fragile," Mr Thanavath said.
The year-end incentives to boost consumption are critical for the economy to register positive growth early next year, he said.
But Montri Sokatiyanurak, executive of the National Institute of Development Administration, disagreed, saying the scheme will benefit only middle- and high-income earners.
Mr Montri said that the tax incentives will mainly increase sales for specific types of goods that are high-priced such as smartphones, which are mostly imported. As a result, he said the liquidity produced by those goods will mainly benefit non-domestic producers.
To stimulate long-term growth, Mr Montri said the government should accelerate infrastructure investment to help create jobs and increase people's income.
He said the government should also take advantage of US President-elect Donald Trump's plans to increase tariffs on Chinese goods to attract Chinese companies to set up production bases in Thailand.
Meanwhile, Isara Vonkusolkit, chairman of the Thai Chamber of Commerce, also hopes that the tax incentives will help revive the poor sentiment at the end of the year.
He expects that doubling the ceiling to 30,000 baht per shopper and extending the tax break period will help increase liquidity in the economy by up to five times the shopping value generated during that period.
"It will depend on what kind of goods the tax breaks are allowed on, Mr Isara said.
Pornchai Theerawech, deputy director-general of the Fiscal Policy Office, said that despite poor sentiment in October, consumption registered slight growth, with the value-added tax rising by 0.3% year-on-year that month.
But growth in VAT collection in October was far lower than the growth of 3.2% in September compared with the same period last year.
Private investment has been hardest hit during the mourning period, as taxes from property transactions in October declined by 2.9% year-on-year while cement sales dropped 5% and machinery sales fell 14%.
Despite the drop in October, property transaction tax in the first 10 months grew by 3.9%, while machinery sales increased by 2.2%, Mr Pornchai said.
The new-motorcycle register, which is a primary indicator of purchasing power, especially for those in the agricultural sector, saw seven months of consecutive growth to 3.1% in October after an easing of tensions from low farm product prices and the drought.
Farmers' income rose 3.8% year-on-year in October, even though average farm product prices shrank 1.2% compared with last year.
"The pressure on crop prices eased although prices remained low," Mr Pornchai said. "They were obviously disrupted in that month due to the mourning period."
Although the export sector contracted 1% for the first 10 months of the year, the FPO is maintaining its contraction target of 0.5%.