Thailand's skyrocketing inflation touching a 10-year high in June, which may escalate further in the next 1-2 months, prompted the government to launch measures to ease the inflationary pressure. Among them are excise tax on gasohol and diesel announced on July 15, 2008 and the latest proposal for value-added tax reductions made by the Ministry of Commerce. However, the Finance Minister disagreed with this idea out of concern that it may adversely affect the government's revenue.
KASIKORN RESEARCH CENTER (KResearch) holds the view that the anti-inflation tax measures will immediately cut the prices of goods which will be a boon to consumers, especially amid the soaring oil prices and inflation.
Still, the point to be considered is that tax cut may encourage higher consumption, making the actual price reduction fall short of the desired result. Other downsides also include the possible mounting budget deficit and the tighter liquidity which may inhibit the interest rate in the money market and at financial institutions from falling despite the positive effect of the tax measure on inflation.
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