A proposal to cut import duty on luxury products to 5% from 30% is set to go before the cabinet for approval by the end of next month, finance permanent secretary Areepong Bhoocha-oom said on Tuesday.
However, Somchai Sujjapongse, director-general of the Finance Ministry's Fiscal Policy Office (FPO), said the government could put the issue on the back burner, as such items could be included in Asean-EU free trade agreement negotiations.
Mr Areepong said if the tax cut wins the cabinet's nod, it will be implemented in time for the peak tourism season.
He said he has discussed the issue with Deputy Finance Minister Benja Louichareon, who has changed her mind to agree with his idea to trim taxes.
Mr Areepong early this month floated the idea of scrapping import duties on luxury goods such as watches, clothing, perfumes and cosmetics by year-end to help the country compete with Singapore and Hong Kong as a shopping paradise.
The tax cut is also a measure to boost economic growth, as domestic consumption, private investment and exports remain weak.
Mrs Benja had opposed a tax waiver or tax cut, saying the move could be harmful to Thai manufacturers.
Policymakers, manufacturers and retail operators have been divided on the issue.
Mrs Benja said the government should cut import duties on luxury products if it reinforces purchasing power.
Luxury products have low price elasticity, so any changes in price have little effect on demand, she said.
However, she does not want the ministry to reveal tax cuts for specific products, as it could cause short-term demand disruption as consumers await an announcement on tax reductions.
Mr Somchai said the government is in no hurry to slash taxes, as a waiver on import duties on luxury items will be discussed under the framework of the Asean-EU free trade negotiations.
The effects of the tax cut on manufacturers is the FPO's greatest concern.
Mr Somchai said Thailand cannot be compared with Malaysia, which has already scrapped import duties on luxury goods, as Thailand has many more small and medium-sized enterprises and some are not strong enough to compete with global brand names.
The FPO will summon operators to find out how to alleviate the impact of tax cuts, he said, adding that one solution may be to cut import duties on raw materials to reduce manufacturers' costs.