VAT hikes just a Band-Aid

VAT hikes just a Band-Aid

A recent government initiative to curb the influx of low-priced goods from China may provide temporary respite for domestic producers. Nevertheless, removing the waiver on value-added tax for such goods will not solve the problem at its core nor in a sustainable manner.

The move came after businesses complained that cheap imports were hurting their trade. Last week, Prime Minister Srettha Thavisin ordered the Revenue and Customs departments to deal with the problem, which is thought to be linked to illegal imports and tax evasion.

Fears of cheap Chinese goods flooding the market made headlines after cheap foreign-made "elephant" pants, the pattern for which has now been trademarked by the Ministry of Commerce, hit the market.

The popular pants faced stiff competition Chinese knock-offs being sold for dirt-cheap prices -- 30 baht apiece from wholesale websites compared to 65-75 baht from local producers. The product usually sells in markets for 120 baht or more a pair.

The Srettha administration plans to revoke the value-added tax waiver on Chinese products sold for under 1,500 baht.

While this Band-Aid solution may be a quick fix, the country needs a more holistic solution to deal with the growing problem of cheap imports in general.

This issue lies at the heart of Thailand's economic challenges and is predominantly caused by high labour costs.

Over the years, populist policies, including successive minimum wage raises, have distorted the competitive landscape.

However, such policies do not help Thai products compete with those made in labour-intensive industrial nations with lower costs. They also distort Thai manufacturers' ability to compete in higher-value industries.

While it's understandable the minimum wage should be boosted appropriately in line with economic development and inflation, it has become an overly politicised feature of parties' electoral campaigns.

While the rises have proved beneficial to many workers, the economy remains heavily entrenched in labour-intensive sectors.

The rising cost of labour has not been matched by a corresponding increase in skilled labourers, as policymakers and economists had hoped.

Another issue which has been ignored is the higher costs of raw materials, many of which are imported. This dependency on imported components underscores the need for a comprehensive strategy beyond imposing a higher VAT levy on incoming goods.

While combating counterfeit products from China is necessary to protect the domestic market, protectionist measures overlook the complexities of the global supply chain.

The government must not forget that Thai producers also benefit from low-cost imports.

Long-term investments in innovation, technology, human capital and boosting the credibility of Thai brand products must be prioritised.

Only by developing skills, promoting technological advancements and investing in infrastructure can Thailand cultivate a workforce capable of competing globally and producing value-added goods.

Raising import taxes may help local producers temporarily, but for lasting economic growth, Thailand must tackle deeper issues and promote innovation.

Transitioning to higher-value industries is crucial if the kingdom seeks to thrive in the global market.


Bangkok Post editorial column

These editorials represent Bangkok Post thoughts about current issues and situations.

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