The five-baht reduction of the diesel excise tax will relieve pressure on logistics and transport costs after diesel prices exceeded 30 baht a litre starting earlier this month, says the Land Transport Federation of Thailand (LTFT).
The two-month tax cut, which was approved by the cabinet on Tuesday, should also help the government avoid what the Federation of Thai Industries called a "perfect storm" in the economy, referring to the combined effects of a limited diesel price subsidy and the end of the diesel excise tax cut scheduled for May 20.
The government previously agreed to halve the tax, usually levied at 5.99 baht a litre, for a period of three months to cap diesel prices below 30 baht a litre.
With diminishing cash in the Oil Fuel Fund, authorities decided to reduce the subsidy from May 1, causing the diesel price to increase.
Without a renewed tax reduction, the price is projected to continue to increase.
"There will be a delay in the rise of logistics and transport costs, at least in the short term," said Thongyoo Kongkhan, advisory chairman of the LTFT.
The diesel excise tax cut will also help slow down the increase in production costs in the manufacturing sector.
Usually a one-baht increase in diesel prices can cause production costs to rise by 3%, said Mr Thongyoo.
The LTFT wants the Commerce Ministry to closely monitor prices of products, following a report that some companies increased prices before the cabinet announced its resolution yesterday.
"Production costs should not increase after the government decided to continue its tax reduction measure," he said.
"Many product prices have reportedly increased and others look likely to follow suit. The government must take action to deal with them, including finding ways to lower prices."
Mr Thongyoo said the tax cut may have some impact on state revenue, causing the government to borrow more. He urged the state to implement new long-term measures beyond the price subsidy and tax cut.