Wednesday, July 22, 2009

Thailand's gem sector looks forward to VAT cut

But exports may still fall by 25%

Published: 22/07/2009 at 12:00 AM
Newspaper section: Business

The elimination of the 7% value-added tax on coloured stones next month will help gem and jewellery operators survive after suffering the biggest drop in exports in three decades, says Somchai Phornchindarak, vice-president of the Thai Gem and Jewelry Traders Association.

"The zero VAT on coloured stone imports will soften the sharp drop in coloured stone exports as well," he said.

During the first five months of this year, coloured stone exports declined 33.6% from a year earlier to US$159 million, but exports of jewellery including gold grew by 65.7% to $4.76 billion due to a significant rise in gold prices.

Mr Somchai said he hoped the VAT reduction would arrest the fall in exports and keep it no greater than a contraction of 25% to $933 million.

"It's good for gem and jewellery operators that the government is lending them the help, otherwise they won't able to compete with India, Dubai and Hong Kong," he said, adding that the association had spent 15 years to obtain the tax incentive.

Gem and jewellery operators believe that the industry will develop in the same direction as the gold market, which also has benefited from tax breaks on both gold imports and exports.

The gold market has increased in value by sixfold since the government reduced the VAT on gold imports and exports.

Normally, the country imports coloured stones worth around $1.5 billion per year. Currently, there are more than 1.1 million workers in the industry but 275,000 of them have been laid off since the global economic crisis began last year.

Mr Somchai hopes employment will revive after the VAT reduction takes effect ahead of the 44th Bangkok Gems & Jewelry Fair from Sept 15-19 at Impact Challenger.

Most operators hope the exhibition and the tax break will help them create marketing promotions to compete with other rivals, especially in terms of pricing and product values.

Mr Somchai said the number of visitors to the jewellery fair would likely decrease, compared with around 30,000 in normal conditions, because of the H1N1 u and the economic downturn. The value of orders at the fair will likely drop to $520 million from US$780 million at the last fair held early this year.

"The big opportunity markets will change from the United States and Europe to China, Russia and the Middle East," he said.

The fair, with space of 60,000 sq m, will have 3,000 booths, down from 3,500 at the last fair.

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