Tourism, Poverty and Taxation: A Case of Thailand Conference on Integrated Development of Sustainable Tourism for the GMS 2007: A Comparison of GMS Logistics System Phousi Hotel, Luang Prabang, Lao PDR October 26-27, 2007 Anan Wattanakuljarus School of Development Economics National Institute of Development Administration Bangkok, Thailand Contents 1. Introduction 2. Is tourism industry labor-intensive in developing countries? 3. Is tourism growth pro-poor growth in developing countries? 4. Tourism taxation 5. Conclusions and recommendations 2 1
Introduction Three major tasks: 1. Observing travel & tourism (T&T) employment across countries to address a question Is tourism industry labor- intensive in developing countries? 2. Examining effects of tourism expansion on income distribution in Thailand to address a question Is tourism growth pro- poor growth in developing countries? 3. Examining effects of tourism lump-sum tax on tourism industry in Thailand 3 Task 1 Observing travel & tourism (T&T) employment across countries Is tourism industry labor-intensive in developing countries? 2
Figure 1: A positive relationship between T&T GDP share and T&T employment share in 150 countries. 100 90 T&T share of total employment (%) 80 70 60 50 40 30 20 10 0 0 20 40 60 80 100 5 T&T share of total GDP (%) T&T in 150 Countries (WTTC 2006) In more than 80 countries, T&T economy contributes at least 10% of GDP and similar proportions of exports & employment Countries with high T&T percentage share of total GDP are countries with high T&T percentage share of total employment Countries with low T&T percentage share of total GDP are countries with low T&T percentage share of total employment 6 3
Figure 2: A positive relationship between T&T GDP share and T&T employment share in the GMS, SEA and China T&T share of total employment (%) 16 14 12 10 8 6 4 Philippines Singapore Vietnam Indonesia Laos Myanmar Brunei Malaysia Thailand China Cambodia 2 4 6 8 10 12 14 16 18 20 7 T&T share of total GDP (%) T&T in the GMS, SEA and China (WTTC 2006) A positive relationship between T&T GDP share and T&T employment share is still valid in the GMS, SEA, China Countries with high T&T percentage share of total GDP are countries with high T&T percentage share of total employment Philippines and Brunei have much higher T&T employment share than T&T GDP share 8 4
T&T in 150 Countries (WTTC 2006 & World Bank 2007) However, figures 1 and 2 say nothing about labor-intensity in T&T sector Let see a relationship between a ratio of [employment share/gdp share] of T&T sector and per capita GDP of 150 countries A ratio of [employment share/gdp share] of T&T sector indicates labor-intensity in T&T sector 9 Figure 3: Ratio of employment share and GDP share of T&T sector and per capita GDP in 150 countries 12 11 10 ln (per capita GDP) 9 8 7 6 GMS 5 4 0.7 0.8 0.9 1 1.1 1.2 1.3 1.4 1.5 Ratio of employment share and GDP share of T&T sector 10 5
T&T in 150 Countries (WTTC 2006 & World Bank 2007) Countries with relatively high per capita GDP (wealthy) are countries with relatively high labor-intensity in T&T sector Countries with relatively low per capita GDP (poor) are countries with relatively low labor-intensity in T&T sector Therefore, in relatively poor countries such as the GMS and SEA, the assumption that tourism is labor-intensive is not correct. 11 Figure 4: Ratio of employment share and GDP share of T&T sector and per capita GDP in the GMS, SEA & China 12.0 11.0 ln (per capita GDP) 10.0 9.0 8.0 7.0 6.0 Singapore GMS (0.74 0.86) Malaysia Thailand China Indonesia Vietnam Laos Cambodia Brunei Philippines 5.0 0.60 0.70 0.80 0.90 1.00 1.10 1.20 1.30 1.40 Ratio of employment share and GDP share of T&T sector 12 6
T&T in the GMS, SEA and China (WTTC 2006 & World Bank 2007) Most of the countries in the region, except Philippines and Brunei, have relatively low labor-intensity (less than one, from 0.74 to 0.86) in T&T sector 1% increase in T&T GDP share generates less than 1% increase in T&T employment share An increase in T&T GDP share does not necessarily increase T&T labor-intensive jobs as many as generally believed 13 T&T in the GMS, SEA and China (WTTC 2006 & World Bank 2007) Expansion of tourism sector in low income (poor) countries like the GMS does not necessarily improve income distribution as understood 14 7
Task 2 Examining effects of tourism expansion on income distribution in Thailand Is tourism growth pro-poor growth in developing countries? Table 1 An increase in consumption, utility and nominal income of households due to 10% inbound tourism expansion in Thailand Increase in real consumption Increase in utility or social welfare Increase in nominal income Poorest 80%, agriculture 2.20 3.18 5.09 Richest 20%, agriculture 4.13 7.06 5.15 Poorest 80%, non-agriculture 2.90 4.44 5.57 Richest 20%, non-agriculture 4.44 7.60 5.80 16 8
Effects of tourism expansion on income distribution in Thailand Tourism expansion increases overall consumption, utility and nominal income for all household classes Within the same income classes, households in non-agriculture gain by more than those in agriculture Within the same sector, high-income households gain more than low-income ones Low-income agricultural households gain the least, while high-income non-agricultural households gain the most Inbound tourism expansion is not a proagriculture or, in relative terms, a pro-poor change 17 Figure 5 Gains from factor income due to 10% inbound tourism expansion in Thailand 4.50 4.00 3.50 Percentage changes 3.00 2.50 2.00 1.50 1.00 0.50 0.00 Agricultural labor Nonagricultural labor Land Agricultural capital Nonagricultural Capital Forest benefits Changes (%) 2.53 3.72 2.79 2.50 3.88 3.40 18 9
Effects of tourism expansion on income distribution in Thailand Capital and labor in non-agriculture are the factors that gain the most Hence, owners of these two factors are expected to be the most beneficiaries from tourism expansion 19 Table 2 Distribution of an extra factor income due to 10% inbound tourism expansion in Thailand Agricultural labor Non-agricultural labor Land Agricultural capital Non-agricultural capital Forest benefits Total (MB) Percent (%) Poorest 80%, agriculture 4,229 2,115 1,616 2,196 14,449 79 24,734 14.04 Richest 20%, agriculture 240 1,087 1,612 908 4,636 33 8,516 4.83 Poorest 80%, non-agriculture 717 21,197 841 125 22,435 4 45,319 25.72 Richest 20%, non-agriculture 188 51,014 1,162 28 45,223 1 97,616 55.41 Total (million baht) 5,374 75,413 5,231 3,257 86,792 117 176,185 100 Percent (%) 3.05 42.80 2.97 1.85 49.26 0.07 100 20 10
Effects of tourism expansion on income distribution in Thailand The largest percentage increase in factor earnings goes to capital in non-agricultural sectors, and the largest part of this gain is earned by the rich-non-agricultural group. Capital and labor in non-agriculture are the first and second ranked beneficiaries of tourism growth, while other factors gain only slightly The inbound tourism expansion raises incomes across the board, but the biggest share of the gains accrues to the non-poor, especially the wealthy non-agricultural households. 21 Task 3 Tourism taxation Examining effects of tourism lump-sum tax on tourism industry in Thailand 11
Effects of tourism lump-sum tax on tourism industry in Thailand Tourism tax is a substantial source of income for developing countries Tourism tax could be used to Reduce poverty Redistribute income Improve public goods and services Correct for market failures, e.g., the use of unpriced public goods and services and the generation of externalities Nonetheless, tourism tax in developing countries is much less than developed countries (Bird, 1992). 23 Effects of tourism lump-sum tax on tourism industry in Thailand A numerical experiment of a thousand baht (28 US$) lump-sum tax levied on inbound tourists traveling to Thailand by air transportation is examined Air Land Sea Total Proportion of ways of international arrivals to Thailand 83% 14% 3% 100% 24 12
Effects of tourism lump-sum tax on tourism industry in Thailand Magnitudes of the effects are minimal and negligible Real GDP growth drops slightly by 0.012% Real tourism expansion falls by only 0.015% Real tourism consumption decreases by only 0.012% Tourism price indices slightly rise by 0.035% Total government revenues increase by 0.014% Social welfare improves by 0.001% to 0.016%. 25 Table 3 Effects on consumption and expenditures of international tourists due to a thousand baht lump sum tax experiment Present level Short run effects Long run effects Total expenditures of international tourists Million baht 165,595 (% changes) - Numbers of international tourists Arrivals 10,061,950 (% changes) - Expenditures per international tourists Baht (% changes) 16,458 165,697 (0.062) 10,065,356 (0.034) 16,462 (0.025) 165,680 (0.051) 10,063,314 (0.014) 16,464 (0.035) Real international tourism consumption (% changes) - 0.0001-0.012 Real tourism expansion (% changes) - -0.001-0.015 26 13
Effects of tourism lump-sum tax on tourism industry in Thailand Prior to taxes, total expenditures of international tourists are 165,595 MB. After taxes, they increase to 165,697 MB. (short run) and 165,680 MB. (long run) That is, they increase by 0.062% (short run) and 0.051% (long run) 27 Effects of tourism lump-sum tax on tourism industry in Thailand Prior to taxes, total international tourists are 10,061,950 After taxes, arrivals of international tourists do not fall After taxes, they increase to 10,065,356 (short run) and 10,063,314 (long run) That is, they increase by 0.034% (short run) and only 0.014% (long run) 28 14
Effects of tourism lump-sum tax on tourism industry in Thailand Prior to taxes, expenditures per international tourists are 16,458 baht After taxes, they rise to 16,462 baht (short run) and 16,464 baht (long run) That is, they rise by 0.025% (short run) and 0.035% (long run) 29 Effects of tourism lump-sum tax on tourism industry in Thailand Real international tourism consumption decreases by 0.012% in the long run Real tourism expansion decreases by 0.015% in the long run Since real tourism expansion decreases by 0.015% in the long run whereas arrivals of international tourists do not fall a decrease of real international tourism consumption by 0.012% in the long run must dominate the results 30 15
Conclusions and recommendations Conclusions and recommendations 1. Regarding the cross-country analysis It is incorrect to assume that tourism sector in developing countries is labor-intensive It should not conclude that an expansion in the sector improves income distribution and benefits the poor 2. A case of Thailand indicates that Tourism growth is indeed not pro-poor growth 32 16
Conclusions and recommendations 3. A thousand baht (28 US$) lump-sum tax levied on inbound tourists traveling to Thailand by air transportation Higher tourism price indices cause international tourists to decrease tourism consumption, but not a decline in international arrivals to Thailand Although there is an increase in tourism price indices, a decrease in tourism consumption, and changes in economic variables the magnitudes of the overall effects are very minimal and negligible 33 Conclusions and recommendations Costs of tax implementation should be taken into account such as Collection costs Management costs Transaction costs Burdens on airlines, air travel agencies, tour operation agencies and transportation authorities 34 17
Conclusions and recommendations More benefits of tourism expansion can be distributed to low-income and agricultural households if the government increases their involvement with tourism Tourism industries may consider proper and fair payments to farmers for the provision of agricultural landscape services and the preservation of the agricultural countryside, payments to local people for the conservation of indigenous culture and tradition Such policy efforts could contribute to the financial strength of the society and the sustainable preservation of national assets 35 End Thank you 18