Authors: Chen Wei Li & Denzil Gomes
Editor & Region Head: Gingee Babu Sasthaa (Uday)
Lagging tourism recovery in Thailand
While globally there are talks of “recovery” and “growth”, the reality is the road to tourism revival remains winding and contingent on effective management of the COVID-19 situation across multiple countries — a highly fragile scenario. Despite South-East Asia initially appearing to be an oasis of peace during the early stages of the outbreak, it certainly was not immune. Consequently, it continues to deal with high caseloads and shuttered economies that have decimated tourist arrivals for well over a year while air travel has moderately resumed in regions like North America.
Even among the region, stark contrasts in recovery abound. While Singapore has been ambitiously expanding its vaccinated travel lanes through bilateral agreements, its ASEAN neighbours with less political clout and infrastructure capability have been left in the shadows. In particular, Thailand has been struggling to revive its hard-hit tourism sector, which generated 18.21% of GDP in 2019 (Ministry of Tourism and Sports (Thailand), 2021). Though their quarantine-free visitor arrival plan is set to take effect from November this year, the success of their precedent attempts are not particularly encouraging. For comparison, Thailand’s 8.5k international visitors in April 2021 (Ministry of Tourism and Sports (Thailand), 2021) was not even a third of Singapore’s 25.7k visitors in the same month (Singapore Tourism Board, 2021). With ASEAN and China each accounting for nearly 30% of tourist arrivals in 2019 (Ministry of Tourism and Sports (Thailand), 2021), the strict border controls that remain for much of these regions exacerbate the problem of slow tourism recovery. More concerningly, the recovery of tourism revenue is projected to trail tourist arrivals as tight-pursed tourists take advantage of desperate discounts by hotels and restaurants (Kishimoto, 2020). As the proposed tax on tourists hangs in the balance, the odds are stacked against Thailand’s 4.5 million tourism industry employees, a million of whom have been laid off over the past year (Phoonphongphiphat, 2021).
Tourist tax in Thailand: Departure from reality?
Initially set at 300 Baht (US$9), the proposed amount was subsequently raised to 500 Baht (US$15), which is to be levied on top of the present tourist departure tax of 700 Baht (US$21) (Yuda, 2021). With the increased revenue, the tourism industry intends to transform Thailand to become a more upmarket tourist location, upgrading infrastructure to enhance safety and cleanliness in particular (Yuda, 2021).
The idea of a tourist tax is not new; such taxes are commonplace among several key tourism destinations around the world, including Paris, Switzerland and Japan (Christine, 2019). As of 2019, there were 41 countries globally that charged a tourist tax (Christine, 2019). Fees vary significantly, from as low as 5 euros (less than 8 SGD) in Germany (O’Neill, 2018) to 250 USD (approximately 340 SGD) per day in Bhutan (Reynolds, 2019).
Similar to Thailand’s intended use of the tax revenue, most tourist destinations claim that the taxes are used for enhancement of tourism infrastructure or preservation of culture. For example, Japan’s sayonara tax that was implemented from January 2019 is used to boost tourism infrastructure such as expansion of free wireless Internet systems on public transportation and also to support funding for the 2020 Tokyo Olympic Games (The Straits Times, 2018). However, such taxes were generally rolled out prior to the onset of the COVID-19 pandemic, where global tourist numbers were on a steady rise year-on-year and peaked at nearly 1.47 billion in 2019 (Figure 1). With high volumes of tourists pushing the limits of tourism capacity while threatening the sustainability of popular tourist sites, countries rolled out tourist taxes to manage over-tourism and its associated problems, including overcrowding, congestion and pollution (Francis, 2021). Imposition of a tourist tax in such situations can thus be seen as a measure to manage the negative externalities from tourism, serving as an economic incentive to reduce tourist numbers and bring it to a socially optimal equilibrium while collecting tax revenues that can be used to develop tourism infrastructure in the country.
Figure 1: Global Tourist Arrivals (millions) from 2011-2020
(Source: UNWTO 2021)
In this light, the tax proposal in Thailand seems ill-timed, coming amidst a global economic downturn, sweeping lockdowns across countries and a 73% decline in international tourist arrivals (UNWTO, 2021). According to international accountancy network UHY (2020), governments have been driven to provide cuts to tourist taxes, causing a tourist’s average daily tax expenditure to fall from 15% to 14%. Countries such as the UK, Ireland, Germany and China have made significant cuts to taxes such as Value Added Tax (VAT) in a bid to stimulate greater tourist demand (UHY, 2020). Thailand’s move thus appears to be in contradiction to the dire situation faced by the country’s tourism industry; while tourism’s contribution to GDP in Thailand increased significantly year-on-year from 2017 to 2019, reaching over 3 trillion Baht in 2019, this fell by a whopping 65% to barely over 1 trillion Baht in 2020 (Figure 2). With the country desperate to recover its tourism numbers, the implementation of a tourist tax poses a risk of further deterring tourist arrivals given the increased cost of tourism in the country.
Figure 2: Thailand’s Tourism GDP (Billion Baht) and y-o-y Growth (%)
(Source: Ministry of Tourism and Sports (Thailand) 2021)
Inelastic travel demand: It’s now or never
Generally, the income levels of tourists would be a key factor in determining their price elasticity of demand. Unlike other upmarket tourist destinations like Paris and Tokyo, Figure 3 shows Thailand’s tourist profile does not look ready for such a tax.
Figure 3: Average spending of overnight visitors (US$) and % of spending for hypothetical US$15 tax (Source: Global Destination Cities Index 2019)
Prior to COVID-19, hotel rooms went for as little as 1000 Baht a night (Yuda, 2021) — one of the reasons why Bangkok remained the most popular tourist destination by volume from 2016 to 2019 (Mastercard, 2019). With the average length of stay in Thailand at 9.3 days in 2019 (National Statistics Office (Thailand), 2021), the combined tax of 1200 Baht (US$36) could amount to as much as 26% of accommodation costs for a couple looking for a low-budget getaway.
However, upon further inspection of travel conditions, the current global environment may present the exact opportunity needed to increase tourism revenues without hurting tourist demand proportionately. Given lockdowns and travel barriers that have kept tourist activity to a minimum, consumers are expected to significantly increase their spending on travel once restrictions are relaxed (Basak, 2021). Not only does this suggest a likely spike in tourist demand in Thailand, the strong desire of tourists to travel also reduces their price elasticity of demand. Thus, the imposition of a tax may not result in a significant fall in tourist numbers.
While direct costs may be raised from the tourist tax, other measures that seek to reduce indirect costs can also play a crucial role in encouraging tourism. For one, Thailand enables vaccinated tourists to travel to popular destinations including Pattaya, Chiang Mai and Bangkok quarantine-free (Pookasook & Kittisilpa, 2021). Tourists can then save on the indirect opportunity costs that are incurred from quarantine, including time and income lost. Thailand thus stands to benefit from tourists switching from other destinations to Thailand given favourable policies in the country.
Additionally, direct travel costs may no longer be the primary concern of tourists in today’s uncertain global environment. A study in the US by Deloitte found that 41% of respondents cited health as their main concern with regards to travel, as opposed to 30% citing financial concerns (Caputo et al., 2021). Factors such as vaccination rates and safety measures were found to be crucial, while budget concerns are no longer an important deterrent for keen travellers (Caputo et al., 2021).
Furthermore, Thailand can take solace in Malaysia’s planned tourist tax on foreign digital platform service providers (DPSPs) which is slated for Jan 2022. Similar to Thailand, the intention is to use the revenue to help transform Malaysia’s tourism industry to become more digitally capable by levelling the playing field for local DPSPs to gain traction and providing assistance for offline local service providers to build a digital presence. At the rate of RM10 (US$2.41) per night (Royal Malaysian Customs Department, 2021), given that the average length of stay for Malaysian tourists is 6.0 days pre-COVID-19 (Ministry of Tourism, Arts & Culture (Malaysia), 2020), the effective additional tax is RM60 (US$14.43) which is comparable to Thailand’s 500 Baht (US$15) tax. However, one key difference is the proportional and embedded nature of Malaysia’s tax in contrast to Thailand’s lump-sum levy nature. Though subtle, the difference in salience of the tax is significant, as explored below.
Perceptibility of tax: Nudging tourists...or not
The mode of taxation plays an important role in influencing the salience of the tax to tourists and thereby taxpayer behaviour (Blaufus et al., 2020). According to psychologists Taylor and Thompson (1982), salience refers to the phenomenon where one’s attention is differentially directed to one portion of the environment rather than others, causing information in that portion to receive disproportionate weighing in subsequent judgments. How the tourist tax is imposed in Thailand would affect its immediacy and impact, as well as whether it captures the attention of tourists. In particular, a low-salience tax may result in little change in behaviour of tourists, mitigating the issue of a decline in tourist numbers. While exact details of the tourism tax in Thailand are unknown, this has been said to come in the form of a tourism fee, or an isolated cost that tourists have to fork out additionally. Such a mode may result in a more significant change in behaviour, given that the incidence of the tax is apparent and there is greater aversion by tourists to losing this additional fee paid (McCaffery and Baron, 2003). In contrast, taxation in the form of, for example, a percentage increase to tax-exclusive prices in the booking of a hotel would be less salient. Furthermore, individuals may be subject to cognitive loafing — while they are aware of the existence of the tax, they do not take the time to compute the value of the tax and thus are less affected by it (Chetty, 2009). The mode of tax can thus be a point of consideration in determining how best to achieve the intended effects on Thailand’s tourism industry.
While the proposed tax seeks to fund the transformation of Thailand’s tourist hotspots into more upmarket locations, the truth is that the industry is in survival and not strategy mode. Thailand’s tourism industry, reeling from nearly two years of lost revenue, badly needs the extra income but opinions on its source are divided. President of Thailand’s Hotel Association Kongsak Khoopongsakorn believes the government should provide the income support instead of tourists, viewing the cost on tourists as one that is too large to bear. As fierce debate and protests ensue over the proposal, we watch with anticipation the developments that will shape the path ahead for Thai tourism.
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