Thailand rescinds oil tax increase

Thailand rescinds oil tax increase

BANGKOK (AFP): Thai Prime Minister Chavalit Yongchaiyudh and a special meeting of economic ministers yesterday agreed to rescind the cabinet's decision this week to increase taxes on oil to meet IMF austerity requirements.

Government spokesman Varathep Ratanakorn said the decision would take effect at midnight, and would be placed on the cabinet agenda next Tuesday for ratification.

"The oil price will go back to the old price," Varathep said.

On Tuesday, the government announced a one baht (three cent) rise in the excise tax on gasoline and diesel as part of a grand economic recovery program including 100 billion baht in budget cuts and 40 billion baht in new taxes.

The fiscal measures were touted as essential to meet requirements for continued drawdowns on a US$17.2 billion International Monetary Fund rescue deal.

As late as mid-day yesterday, Deputy Premier Virabhongse Ramangkura was insisting that despite comments of other ministers to the contrary, the oil tax would remain.

Virabhongse has been assigned responsibility for ensuring compliance with the terms of the IMF package.

Markets have been quaking over the rifts in the cabinet and the lack of detail in an accompanying package of measures to rehabilitate debt-ridden financial institutions.

The Thai baht hit an all-time offshore low of 37.40 to the dollar yesterday before closing at 37.15.

A special cabinet meeting yesterday turned executive decrees needed to provide a basis for the financial reforms back to the Council of State to check the legal language.

Banks and finance companies carry an estimated 1.36 trillion baht in bad debt, and the central bank has suspended operations at 58 finance firms, ordering them to come up with viable rehabilitation plans or be stripped of their assets.

Coalition members will meet over the weekend on a cabinet reshuffle to improve the credibility of the government's economic management, but powerful factions in the premier's and other parties have refused to make way for technically competent outsiders.

The country was forced seek IMF help after spending tens of billions of dollars to prop up failing financial institutions and a similar amount in a failed defense of the baht's peg to the dollar.