Prospective car buyers are prepared for higher retail prices for most car models, particularly large-engine cars with high emissions, as the new excise tax became effective last Friday.
The new excise tax regime is based on carbon dioxide (CO2) emissions, E85-gasohol compatibility and fuel efficiency rather than just engine size as before because the government intends to encourage manufacturers to improve their vehicles to become environmentally friendly with reasonable prices.
The excise tax on eco-cars with CO2 emissions below 100 grammes per kilometre will be cut to 12-14% from 17%, but the 10% rate for hybrid vehicles will remain.
The new tax rates mean vehicles sold in Thailand with larger engines and higher CO2 emissions will face higher tax rates and higher retail prices. Those who go for eco-friendly cars will not be affected by higher taxes.
Price check
All segments of passenger cars including sport-utility vehicles (SUVs) are estimated to rise in cost by 60,000-500,000 baht per unit under the new excise tax structure if they are only E10- or E20-gasohol compatible.
But the price increase for similar units with E85-gasohol compatibility is estimated at only 80,000-160,000 baht.
The rate for pickups that release CO2 of less than 200 grammes per kilometre will rise to 5% from 3% for a space cab. Rates will be unchanged at 3% for a single cab and 12% for a double cab.
Large pickups, passenger cars and pickup passenger vehicles (PPVs) normally have high emissions and will be subject to a higher tax.
For vehicles with emissions greater than 200g/km, the tax rate will increase to 5% for a single cab, 7% for a space cab and 15% for a double cab.
That means the rates for single-cab pickup trucks that release CO2 of less than 200g/km will be unchanged at 3%, but will rise by another 7,000-9,500 baht for those with emissions of over 200g/km.
Most single-cab models are normally used for commercial purposes, so they are entitled to a relatively low tax rate.
But the prices for space cab and double cab pickups that emit over 200g/km will rise by 8,000-30,000 baht under the new tax structure because of larger engines.
PPVs and other passenger cars will face higher prices of 70,000-190,000 baht because they are mainly for personal use.
"Although car retail prices will increase this year because of the new taxes, we've got to look at the benefits for the industry in the long run," said Ong-arj Pongkijworasin, chairman the automotive industry club of the Federation of Thai Industries (FTI). Small and eco-friendly vehicles will enjoy a lower rate tax, he said.
The new excise tax was approved by the cabinet in 2012. Car makers were given time to improve their vehicles to match the new tax regime.
"The new tax structure focuses on more eco-friendly vehicles, which is in line with other car-making countries," he said.
"The change will be good for the country's auto industry because all vehicles from 2016 on will match global demand. I am confident all Thai-made models can perform well and will be more competitive in the export sector over the long term."
Impact On the Market
Surapong Paisitpatanapong, spokesman for the FTI's automotive industry club, said higher retail price prospects would affect the country's car industry in 2016.
He forecast domestic car sales would remain relatively low at 750,000-780,000 vehicles this year, citing the country's poor economic conditions.
"Higher retail prices psychologically affect potential car buyers' sentiment," said Mr Surapong.
The club predicted domestic vehicle sales of as low as 750,000 units in 2015 as the poor economy blunted demand.
Vehicle output was estimated at 1.95 million units in 2015, ranking 12th in the world, unchanged from 2014. Exports of completely built units were picked to rise by 6.4% to exceed 1.2 million units, he said.
Many downside risks including low crop prices, shrinking private investment, stricter approvals for hire-purchase financing and slow budget disbursement by the government hurt Thailand's car market, said Mr Surapong.
Thailand's domestic car sales are likely to record a third straight decline in 2015. Sales tallied 1.45 million units in 2012 and 1.33 million in 2013, propelled by the first-time car buyer scheme and strong demand after floods hit several provinces in 2011.
Sales fell 33.7% in 2014 to 881,832 vehicles, depressed by political turmoil and low prices for farm products. For the first 11 months this year, the FTI reported sales of 698,163 units locally, down 11.9% year-on-year, while the 11-month output increased by 1.97% year-on-year to 1.76 million units.
Some 1.12 million cars were exported from January to November, up 7.63% for a value of 546 billion baht, up 11.9%.
Pitak Pruittisarikorn, chief operating officer at Honda Automobile (Thailand), forecast the domestic market will remain bearish with sales of 750,000-765,000 units in 2016.
About 15,000 units of large SUVs and PPVs were sold in 2015, mainly during the last quarter, indicating future demand has already been taken.
Mr Surapong projected 1.22-1.25 million vehicles would be shipped in 2016. This is a slight increase based on a global economic recovery.
Good Prospects for Used Cars
Pinyo Tanawatcharaporn, director of the Association of Used-Car Dealers, said higher retail prices may prompt potential buyers to purchase used cars in 2016 as their prices are expected to remain unchanged.
He forecast the retail prices of passenger cars, pickup trucks and PPVs would increase by 5-10% in 2016. A new Toyota Camry should rise from 1.4-1.5 million baht to 1.7 million this year, but a second-hand unit of the same model will stay unchanged at 600,000-700,000 baht, said Mr Pinyo.
"I am confident some customers will prefer buying used cars to avoid the higher retail prices," he said.
Mr Pinyo also expected Thailand's vehicle market for both new and used units to be more competitive in 2016.
"With the retail prices of most models to rise, car makers are very likely to launch several marketing campaigns to attract buyers," he said. "But the country's domestic car market is likely to stay unchanged from 2014 and 2015."
Mr Pinyo expects used car sales to increase 5-10% in 2016.
In 2015, some 1.28 million used cars were estimated to be sold, 10% more than last year, as economic constraints discouraged new car purchases.
The used car market has finally recovered from the government's generous first-time car buyer programme from 2011-12 when the price gap between used and new vehicles was narrowed to 30% compared with 40-50% now.
Somchai Tragulpirom, general manager of Master Certified Used Cars, a unit of Master Group Corporation (Asia), said bullish prospects for the second-hand vehicle market in 2016 were partially because of a smaller supply.
Normally the used car supply ranges from one to 1.5 times the volume of new car sales. The used car market is valued at 900 billion baht annually.