Publication Code: A99
by Nipon Poapongsakorn, Deunden Nikomboriruk, Tongta Temboonkiat, and James Milne
Gold ornaments have always been a part of the Thai tradition. Approximately 35 billion baht (US$1.4 billion) is spent on gold ornament each year. The primary motives for gold holdings have been savings and security. Gold ornaments are a rather liquid asset in Thailand as they can be easily exchanged for cash at a reasonable resale value. With the added utility of adornment, gold jewelleries have been a popular source of savings.
The size of the ornamental gold market in Thailand is estimated roughly at 30 to 40 billion baht per annum. Very little is known of this industry, however, as a large part of it operates through illegal and informal channels. Gold smuggling is rampant. Anecdotal evidence suggests that smuggled gold represents approximately 70-75 per cent of the total annual gold import into the Kingdom. As gold is acquired through illicit channels, its fabrication is obscure. At the retail level, there is hardly any data with regard to sales, costs and profits. Most retail gold stores in Thailand are registered as "antique (or second hand) stores" so that smuggled bullion can be disguise with recycled gold. Thus, little is known of the fabrication process. Moreover, about 80 per cent of gold stores filed "small business" status for tax purpose. With such a status, the VAT and income tax collections are applied only on "estimated" income and sales figures. As there is not a clear method of estimation, the process is subject to arbitrariness and prone to corruption. Consequently, figures from the revenues department reveal that the industry is overwhelmingly undertaxed as we shall see later on.
The strive to remain nontransparent and stay aloof from the tax authorities has deprived the gold industry of modern technology and sophisticate marketing techniques and the government of billions of baht of tax revenues each year. In the last few years (1988-1995) this shady industry managed to sustain a health rate of growth each year riding on the waves of the country's rapid economic expansion. But not whose heydays are over. With the economy teetering on the brink of a recession, gold retailers have to look for vast opportunities in overseas market. The industry is now at a crossroad; it suddenly finds itself needing of becoming competitive internationally. After many years spent evading tax by remaining informal and obscure, the gold Thai gold industry is in serious need of modern designing, fabricating and marketing techniques. yet, producers who are used to not charging VAT tax and paying minimal corporate tax find it hard to charge buyers the 7% VAT and to pay 30% corporate tax. At this junction, it is necessary for the government to take necessary steps to stop smuggling and to crack down on tax evasion as well as re-examine the existing tax regime in order to divert bullion trades from the illicit channel.
The objective of this paper is to investigate ways in which the illegal activities can be abated or eliminated and to propose steps or measures that must be taken. This requires an understanding of the structure and conduct of this rather opaque industry as well as the laws and regulations governing it.
1997