First-car tax rebate policy not entirely bad for economy
The first-car rebate scheme was a popular policy which helped many Thais realise their dreams of owning their first cars. Over 1.25 million people signed up for the first-car tax rebate scheme between September 2011 and December 2012. But what happened after that?
In an attempt to understand the impact of this scheme on the government’s budget, we have looked at the data and found that it has adversely affected both the government’s revenues and expenses.
The scheme has led to a fall in tax revenue given the decrease in car sales after the promotional policy ended.
The government also needs to pay for ongoing tax returns, which has imposed an extra budget burden.
The finding came from a study for our project called Thai Parliamentary Budget Office (Thai PBO) under the Thailand Development Research Institute.
The project is part of a campaign to set up a research arm in parliament so lawmakers understand better the impact of government policies on the national coffers and strengthen fiscal discipline.
Thai PBO assessed the impact of the policy by analysing the data of registered private car ownership of vehicles with up to seven seats from the Department of Land Transport (DLT).
Car excise value is correlated more closely with the number of private cars alone than the number of the private cars combined with the other types of cars.
In processing the data, we created a model to forecast the number of registered private cars from fiscal year 2012 and in following fiscal years, assuming the first-car tax rebate scheme had not been launched.
This forecasting model was created by using private car registration data between the first quarter of 1993 and the third quarter of 2011.
Thai PBO compared the forecast numbers of registered private cars with the actual number of registered private cars, announced by the government, during the first quarter of 2012 and the first quarter of 2013. The margin between these two numbers illustrates the increase of car sales as a result of the policy.
We also adjusted an increase in the number of car sales which was calculated from the forecasting model to the total number of registrations for car tax rebate which was announced by the director-general of the Excise Department. In adjusting the data, we separated the register number into three categories.
The first category includes people who planned to buy their first car regardless of the government’s scheme. The second category includes people who planned to buy their first cars in the future and decided to purchase their cars during the first-car tax rebate scheme.
And the last category includes people who had not planned to buy a car but eventually decided to buy one because of the rebate. We calculated the number of people in the first category using the proportion between numbers of first registered private cars and total registered private cars in the past. The combined number between the other two groups presented surplus car sales affected by the scheme.
We note, too, that people who have decided to buy their cars earlier because of the scheme contributed to the drop in car sales when the scheme was over. The Thai PBO expects this impact would continue until the second quarter of 2016.
From the data collected, we found the number of private car sales has increased significantly during the scheme period. However, the number dropped by 36% in fiscal year 2014. As a result, the excise value would probably drop by about 7 billion baht in fiscal year 2014 and 2015. The decrease in car excise would also affect overall excise value.
The Thai PBO predicted overall excise value in 2014 would increase by 3.5% from 2013. This forecast number is different from government’s prediction of 7.2%.
Nevertheless, we foresee no significant impact on the value-added tax and corporate income tax.
On the expenditure side, the Excise Department obtained tax from the increase in car sales of 54 billion baht. However, the government had set up 82 billion baht of tax rebates. Thus, the government may lose the difference of 28 billion baht.
In summary, the government may lose approximately 20-30 billion baht from this scheme. We note, however, the positive outcomes from the policy and the impact of the policy on Thailand’s economic growth and the automotive industry should be further assessed.
Pawin Siriprapanukul is lecturer at the Faculty of Economics, Thamasat University and researcher of the Thai Parliamentary Budget Office (Thai PBO) programme of the Thailand Development Research Institute. Policy analyses from the TDRI appear in the Bangkok Post on alternate Wednesdays.