TAX INCENTIVES: Thailand’s experience IMF Tax Policy Seminar for Asian and

1. TAX INCENTIVES: Thailand’s experience IMF Tax Policy Seminar for Asian and Pacific Countries on Tax incentives Tokyo, June9th, 2009 Financed by JSA Lawan Puwan Director of Tax Policy Bureau Fiscal Policy Office, Ministry of Finance Fiscal Policy Office

2. Thai Tax System Tax Incentives in Thailand Thailand’s Recent Economic Situation Economic Stimulus Measures & Impacts Conclusion Presentation Outline 2 Fiscal Policy Office

3. Thai Tax System 3 Fiscal Policy Office

4. Development of Thai Tax system • Various types of taxes, tax bases and tax rates. • Rely on indirect taxes. • Direct taxes becomes more important. • Declining trend of import duties. • Emphasize more on domestic taxes. 4 Fiscal Policy Office

5. Tax Structure • Taxes collected by National Authorities • Income Taxes & Value Added Tax (VAT) & Specific business taxes collected by Revenue Department • Excise Tax collected by Excise Department • Custom duties collected by Customs Department • Taxes collected by Local Authorities • Land and Housing Tax, Land Development Tax Signboard Tax, Slaughter Tax, Swallow Bird’s nest Duty, Petrol Stations Tax, Hotel Tax and Retail Tobacco Tax 5 Fiscal Policy Office

6. Income Tax • Personal Income Tax : PIT • Tax Base : net income earned during 1 yr. after deduction of expenses and allowances. • Tax rate : Progressive Rate from 10 to 37 % • Corporate Income Tax : CIT • Tax base and Tax rate 6 Fiscal Policy Office

7. Value Added Tax (VAT) • VAT in Thailand was introduced in Jan. 1, 1992 • Tax base and Tax rate • A consumption type with full tax credit and invoice base reduce from 10% to 7% until Sept 30, 2007 7 Fiscal Policy Office

8. Specific Business Tax (SBT) • Basic Concept • Imposed on various commodities and services; Banking /similar business, finance, credit fancier, securities business, insurance, pawn brokerage, real estate business and sale of securities in the SET • Impose at flat rate from 2.5%-3.0% excluding 10% local tax on top • Excluded from the VAT system 8 Fiscal Policy Office

9. Excise Tax • A selective / single stage sales tax • Roles of excise: In line with conventional objectives of the excise • 20 categories of goods and services are subject to tax • Petroleum, Automobile, Tobacco, and Alcohol generating > 75% of excise tax revenue • Tax base : ex-factory price (domestic products) and CIF + Import duties (Imported products) • Tax rate: specific or ad-valorem rate 9 Fiscal Policy Office

10. Customs Duties • An indirect tax levied on both imported and selected exports • Classification of imports based on the harmonized commodity description and coding system • Duties are levied on a specific or an ad-valorem basis, whichever is higher • Tax Base: the CIF Value • Customs tariffs at present ranged between 0% - 80%, the highest rate being for passenger cars 10 Fiscal Policy Office

11. Tax Incentives in Thailand 11 Fiscal Policy Office

12. Tax Incentives in Thailand • Tax incentives for investment • Tax incentives for export promotion • Tax incentives for social welfare • Tax incentives for promoting renewable energy etc. 12 Fiscal Policy Office

13. Tax Incentives for investment promotion • Restructuring the import duties classified by value escalation: • Under the Investment Promotion Act of 1977, the Board of Investment is authorized to grant incentives and privileges to qualified investments. - Investment promotion zones used to support government goals. • - The BOI offer 2 kinds of incentives to promoted projects. •  Tax incentives: exemption/reduction of import duties on machinery and • raw materials • : exemption of CIT (3-8 years) •  Non-tax incentives : permission to bring in foreign workers • : own land and take or remit foreign currency abroad. 13 Fiscal Policy Office

14. 3 Zones Types of the priority projects • Agriculture & agricultural products • Direct involvement in tech & HR development • Public utilities, basic services and infrastructure • Environmental protection and conservation • Targeted industries 14 Fiscal Policy Office

15. Tax Incentives for export promotion 15 Fiscal Policy Office

16. Tax Incentives for export promotion 16 Fiscal Policy Office

17. EXPORT VALUE CLASSIFIED BY TAX INCENTIVES 2008 Source: Information and Communications Technology Center, Ministry of Finance :The Customs Department, Ministry of Finance 17 Fiscal Policy Office

18. Thailand’s Recent Economic Situation 18 Fiscal Policy Office

19. Global Crisis and Impacts to Thailand Real Sector Financial Institutions Liquidity Issue 1 2 3 Crisis of confidence led to credit crunch and insolvency threats Lower income from contraction of global demand and production Global Declining asset value & writedown Limited impact as Thai banks have only 0.4% related to CDOs Limited impact in terms of liquidity Negative impact on our export-driven economy 3 2 1 Unlike financial crisis in 1997, Thai financial institutions and corporates have stronger balance sheet Thailand Ample liquidity in banking Sector Credit issues of corporates (particularly SMEs) • Contraction in export • Lower capacity utilization • Increase in unemployment • Dampened consumer confidence ? • Low leverage ratio • Sufficient capital base • Low NPL ratio Banks are reluctant to lend Capital & Liquidity to Support Recovery Liquidity Problem & Lower Investment Lower Consumption Overclouded by political crisis 19 Fiscal Policy Office Note: (1) Thai banks have only 1.2% of total assets exposed to foreign assets (2) Export accounts for 72% of total GDP

20. Real GDP Q4/2008 Contracted -4.3 % yoy 2006 5.2% 2007 4.9% 2008 2.6% . Source : National Economic and Social Development Board 20 Fiscal Policy Office

21. Thailand’s Economic Indicators : Private Consumption Note: Real VAT (Feb 09): -24.2% YOY; CCI (Feb 09): 67.2 21 Source : Compiled by FPO Fiscal Policy Office Fiscal Policy Office

22. Thailand’s Economic Indicators : Private Investment Note: * Special items such as airplane, ship, train; ** Adjusted for temporary tax rate reduction to 0.1% Real Estate Tax Collection (Feb 09): -13.2% YOY Source : Compiled by FPO 22 Fiscal Policy Office Fiscal Policy Office

23. Thailand’s Economic Indicators : Fiscal sector Fiscal Policy Office Fiscal Policy Office Source : Compiled by FPO

24. Thailand’s Economic Indicators : Export Fiscal Policy Office Source : Compiled by FPO

25. Thailand’s Economic Indicator : Import 25 Source : Compiled by FPO Fiscal Policy Office Fiscal Policy Office

26. Economic Stimulus Measures Objectives: • To increase welfare & support SMEs / enterprise community • To promote real estate sector • To promote tourism • To promote debt restructuring and M&A Measures:  Fiscal instruments: Tax policies, government spending  Monetary instruments 26 Fiscal Policy Office

27. Tax incentives for social welfare • Allowances: - Disable person - Life insurance premium - Long term saving - Education - Aging etc. 27 Fiscal Policy Office

28. Tax incentives for renewable energy • Reduce the excise tax rate: - Gasohol with ethanol content not less than 10%, 20%, and 85% - Bio-diesel - Passenger /public transport vehicles (< 10 seats): - E20, E85, and NGV • - Hybrid Electric Vehicles • - Electric Powered Vehicles • - Fuel Cell Powered Vehicles • - Eco car 28 Fiscal Policy Office

29. Tax incentives for renewable energy (cont.) • Reduce import duties: - NGV equipments and engines - CKD Chassis with Engine and Chassis with Engine for transport cars  Deduct 125% of PIT and CIT for purchase of energy saving equipment 29 Fiscal Policy Office

30. Conclusion Fiscal Policy Office