TAX INCENTIVES Thailands experience IMF Tax Policy Seminar

TAX INCENTIVES: Thailand’s experience IMF Tax Policy Seminar for Asian and Pacific Countries on Tax incentives Tokyo, June 9 th, 2009 Financed by JSA Lawan Puwan Director of Tax Policy Bureau Fiscal Policy Office, Ministry of Finance Fiscal Policy Office

Ministry of Finance, Fiscal Policy Office Tax Policy Bureau Presentation Outline • Thai Tax System • Tax Incentives in Thailand • Thailand’s Recent Economic Situation • Economic Stimulus Measures & Impacts • Conclusion Fiscal Policy Office 2

Ministry of Finance, Fiscal Policy Office Tax Policy Bureau Thai Tax System 3 Fiscal Policy Office

Ministry of Finance, Fiscal Policy Office Tax Policy Bureau 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

Ministry of Finance, Fiscal Policy Office Tax Policy Bureau 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 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

Ministry of Finance, Fiscal Policy Office Tax Policy Bureau • 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 Tax Base Net Profit after deductible expenses Income before expense Profit disposed out of Thailand Fiscal Policy Office Tax Rate 30% * 3 - 10% (depend on income type) 10% 6

Ministry of Finance, Fiscal Policy Office Tax Policy Bureau • 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 Type reduce from 10% to 7% until Sept 30, 2007 - General goods and services - Exported goods and services - Small entrepreneurs with annual sale amount less than 1. 8 mil. Baht - Some goods and services i. e. Unprocessed agricultural products, Domestic transportation and Amateur sports etc. Fiscal Policy Office Rate (%) 10 * 0 Exempt 7

Ministry of Finance, Fiscal Policy Office Tax Policy Bureau • 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

Ministry of Finance, Fiscal Policy Office Tax Policy Bureau 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

Ministry of Finance, Fiscal Policy Office Tax Policy Bureau 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

Ministry of Finance, Fiscal Policy Office Tax Policy Bureau Tax Incentives in Thailand 11 Fiscal Policy Office

Ministry of Finance, Fiscal Policy Office Tax Policy Bureau Tax Incentives in Thailand l Tax incentives for investment l Tax incentives for export promotion l Tax incentives for social welfare l Tax incentives for promoting renewable energy etc. 12 Fiscal Policy Office

Ministry of Finance, Fiscal Policy Office Tax Policy Bureau Tax Incentives for investment promotion l Restructuring the import duties classified by value escalation: l 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 take or remit foreign currency abroad. 13 Fiscal Policy Office

Ministry of Finance, Fiscal Policy Office 3 Zones Tax Policy Bureau Types of the priority projects 1. Agriculture & agricultural products 2. Direct involvement in tech & HR development 3. Public utilities, basic services and infrastructure 4. Environmental protection and conservation 5. Targeted industries 14 Fiscal Policy Office

Ministry of Finance, Fiscal Policy Office Tax Policy Bureau Tax Incentives for export promotion Measures 1. Duty Drawback under Section 19 bis 2. Duty Compensation Responsible Organization Privileges Customs Department Refund of import duties Fiscal Policy Office & Customs Department Refund of import duties 3. Manufacturing Bonded Warehouse Customs Department Exempt import duties 4. Custom Free Zone Customs Department Exempt import duties 15 Fiscal Policy Office

Ministry of Finance, Fiscal Policy Office Tax Policy Bureau Tax Incentives for export promotion Measures 5. Industrial Free Zone (IFZ) 6. Duty Exemption under Investment Promotion Act Responsible Organization Privileges Industrial Estate Authority Exempt import duties Office of the Board of Investment Exempt import duties 16 Fiscal Policy Office

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

Ministry of Finance, Fiscal Policy Office Tax Policy Bureau Thailand’s Recent Economic Situation 18 Fiscal Policy Office

Ministry of Finance, Fiscal Policy Office Tax Policy Bureau Global Crisis and Impacts to Thailand 1 Declining asset value & writedown Global 3 Thailand Financial Institutions Limited impact as Thai banks have only 0. 4% related to CDOs Unlike financial crisis in 1997, Thai financial institutions and corporates have stronger balance sheet 2 Liquidity Issue Crisis of confidence led to credit crunch and insolvency threats 3 Lower income from contraction of global demand production Limited impact in terms of liquidity 2 Real Sector Negative impact on our export-driven economy 1 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 Note: (1) Thai banks have only 1. 2% of total assets exposed to foreign assets (2) Export accounts for 72% of total GDP Fiscal Policy Office

Ministry of Finance, Fiscal Policy Office Tax Policy Bureau Real GDP Q 4/2008 Contracted -4. 3 % yoy 2006 5. 2% %4. 9 2007 2008 2. 6% . Source : National Economic and Social Development Board Fiscal Policy Office 20

Ministry of Finance, Fiscal Policy Office Tax Policy Bureau Thailand’s Economic Indicators : Private Consumption Growth rate% : YOY )Share of GDP( Real private consumption(51. 8%) 2007 2008 2009 Q 1 Q 2 Q 3 Q 4 Dec Jan 1. 6 2. 5 2. 7 2. 2 - 3. 6 9. 1 11. 5 9. 4 16. 1 40. 1 3. 4 - 16. 2 - No. of passenger car sales 11. 3 - 32. 7 39. 1 24. 8 22. 3 47. 5 98. 2 10. 0 - Motorcycle sales -16. 8 7. 9 1. 5 6. 2 16. 2 8. 0 14. 1 21. 6 - Agricultural Price 1. 2 25. 1 18. 2 35. 5 9. 1 5. 0 0. 2 Import of consumer goods (value) 24. 6 26. 7 37. 4 35. 8 1. 4 -2. 5 17. 9 - Import of consumer goods (volume) 20. 3 20. 1 29. 7 28. 4 29. 8 -2. 5 -5. 9 20. 4 - Consumer confidence index 71. 0 70. 7 72. 5 71. 9 70. 6 67. 7 67. 5 68. 3 Private consumption indicator Real value added tax Note: Real VAT (Feb 09): -24. 2% YOY; CCI (Feb 09): 67. 2 Source : Compiled by FPO Fiscal Policy Office 21

Ministry of Finance, Fiscal Policy Office Tax Policy Bureau Thailand’s Economic Indicators : Private Investment Growth rate% : YOY )Share of GDP( 2008 2007 2009 2008 Q 1 Q 2 Q 3 Q 4 Dec Jan Real private investment (16. 6%) 0. 6 3. 2 6. 5 4. 3 3. 5 1. 3 - - Private investment in machinery (12. 8%) 1. 6 4. 2 8. 3 5. 2 5. 4 1. 4 - - Private investment in construction 3. 7)%( -2. 7 -0. 2 0. 4 1. 3 1. 9 - 0. 7 - - Import of capital goods (volume) 1. 2 - 12. 9 31. 3 9. 8 13. 1 0. 6 -7. 0 -29. 8 Import of capital goods (volume) excluding special items* 1. 1 11. 4 200. 5. 61 12. 5 4. 5 3. 0 19. 9 - 6. 0 - -15. 8 7. 7 -5. 6 -25. 8 -32. 7 -32. 8 -39. 5 Real estate tax collection** 0. 8 1. 1 - 3. 9 - 29. 3 22. 2 -4. 1 -16. 9 0. 8 Domestic cement sales 5. 0 - -10. 3 -5. 9 -5. 3 -16. 5 -13. 9 -2. 1 -11. 9 Private investment indicator Commercial car sales Note: *Special items such as airplane, ship, train; ** Adjusted for temporary tax rate reduction to 0. 1% Source : Compiled by FPO Real Estate Tax Collection (Feb 09): -13. 2% YOY Fiscal Policy Office 22

Ministry of Finance, Fiscal Policy Office Tax Policy Bureau Thailand’s Economic Indicators : Fiscal sector Unit )billion Baht( 2008 2007 2009 2008 Q 1 Q 2 Q 3 Q 4 Dec Jan Feb Net revenue 1, 470. 4 1, 495. 8 308. 8 499. 0 412. 9 272. 8 76. 2 88. 6 82. 4 %y-o-y 6. 9 1. 7 -0. 8 15. 5 3. 1 -16. 5 -8. 6 -29. 1 588. 1 665. 8 110. 2 227. 7 227. 1 100. 9 26. 4 36. 8 31. 8 6. 8 13. 2 12. 2 16. 2 17. 4 0. 3 -6. 5 6. 3 -1. 8 445. 2 501. 7 124. 5 127. 4 133. 9 115. 9 36. 8 36. 1 30. 1 4. 9 12. 7 15. 8 21. 8 -1. 5 -6. 9 -18. 3 -25. 2 1, 668. 1 1, 644. 4 402. 2 424. 6 413. 3 404. 3 145. 4 192. 4 179. 7 25. 1 -0. 3 -8. 0 1. 8 -1. 6 2. 8 31. 2 21. 5 53. 3 1, 273. 2 1, 296. 1 292. 3 320. 6 348. 9 334. 3 118. 4 126. 0 132. 6 27. 4 3. 3 -8. 3 1. 9 3. 6 10. 3 34. 2 34. 1 35. 4 297. 7 240. 9 76. 8 86. 5 49. 5 28. 1 9. 5 52. 0 33. 9 37. 7 -19. 1 -12. 3 -0. 2 -28. 0 -48. 7 -2. 0 -1. 8 217. 8 97. 2 107. 5 33. 1 17. 5 14. 9 42. 0 17. 6 14. 4 13. 1 -17. 0 10. 7 6. 7 8. 4 2. 1 18. 8 35. 1 25. 5 30. 8 - Income-based tax %y-o-y - Consumption-based tax %y-o-y Government expenditure(1+2) %y-o-y - Current expenditure %y-o-y - Capital expenditure %y-o-y - Carry over %y-o-y Fiscal Policy Office Source : Compiled by FPO

Ministry of Finance, Fiscal Policy Office Tax Policy Bureau Thailand’s Economic Indicators : Export Growth rate% : YOY )Share of GDP( 2007 2008 6. 7 Value $ term (Custom Dept(. 18. 6 Price $ term (Ministry of Commerce( 5. 7 10. 5 12. 2 Real export(56. 8%) Volume $ term (FPO( 2008 2009 Q 1 Q 2 Q 3 Q 4 Dec Jan 6. 0 7. 5 9. 8 12. 6 8. 9 - - - 15. 6 23. 1 28. 1 26. 1 10. 6 - -14. 6 26. 5 - 9. 9 12. 5 15. 0 4. 6 . 71 0. 9 4. 4 12. 0 13. 9 9. 7 14. 6 - -16. 0 27. 1 - 14. 9 0. 7 10. 0 12. 6 6. 2 21. 8 - -34. 6 40. 4 - 9. 7 2. 0 - 7. 3 13. 4 0. 1 -24. 3 -36. 8 42. 1 - 15. 6 6. 1 14. 2 14. 3 16. 1 17. 3 - 20. 7 - 29. 5 - 13. 5 1. 7 10. 2 9. 5 10. 4 20. 6 - 23. 5 - 30. 7 - 32. 5 21. 3 34. 3 31. 0 35. 7 10. 4 - 20. 7 - 34. 5 - Main export goods (share of total export in 2008( Electronic goods(17. 5%) volume $ term Electrical appliances (10. 1%( volume $ term Vehicles(11. 0%) volume $ term Agro industry sector(6. 6%) volume $ term Agricultural sector (11. 3%( volume $ term Fuel(6. 8%) volume $ term Fiscal Policy Office 20. 9 15. 4 27. 2 25. 0 28. 3 14. 2 - 23. 7 - 37. 1 - 19. 1 23. 4 14. 4 27. 8 38. 2 13. 6 9. 7 7. 5 - -1. 9 7. 4 19. 1 6. 2 8. 0 8. 2 - 16. 5 7. 7 15. 5 32. 8 39. 9 56. 7 57. 5 11. 5 - 27. 9 - 33. 4 - 5. 7 0. 2 14. 3 7. 5 3. 4 19. 2 - 27. 1 - 34. 5 - 8. 9 61. 0 87. 9 96. 6 95. 1 7. 7 - 15. 3 - 45. 1 - -2. 3 23. 4 32. 6 30. 1 27. 2 11. 4 26. 1 19. 1 - Source : Compiled by FPO

Ministry of Finance, Fiscal Policy Office Tax Policy Bureau Thailand’s Economic Indicator : Import Growth rate% : YOY )Share of GDP( 2007 2008 2. 2 Value $ term (Custom Dept(. Price $ term (Ministry of Commerce( Real import (45. 6%) Volume $ term (FPO( 2008 2009 Q 1 Q 2 Q 3 Q 4 Dec Jan 6. 9 10. 0 5. 4 12. 5 0. 1 - - 8. 7 27. 6 38. 0 29. 3 39. 9 6. 1 -6. 5 37. 6 - 5. 3 12. 6 15. 6 17. 7 16. 0 2. 1 -2. 3 3. 5 - 3. 2 13. 1 19. 3 9. 8 20. 5 3. 7 -4. 3 35. 3 - 14. 8 29. 3 29. 4 30. 1 48. 3 9. 4 -15. 2 41. 9 - 8. 1 16. 7 17. 4 15. 7 31. 2 2. 6 -18. 8 43. 4 - 0. 9 18. 0 37. 6 16. 2 18. 4 3. 5 -4. 9 29. 5 - 1. 1 - 12. 9 31. 3 9. 8 13. 1 0. 6 -7. 0 29. 8 - 24. 7 26. 7 37. 4 35. 8 1. 4 -2. 5 17. 9 - 20. 3 20. 1 29. 7 28. 4 29. 8 -2. 5 -5. 9 20. 4 - 2. 2 43. 9 68. 4 50. 2 60. 4 5. 9 4. 0 53. 4 - 5. 5 - 10. 6 13. 8 -1. 7 10. 3 20. 9 45. 0 35. 4 - Main import goods (share of total import in 2008) Raw materials(43. 4%( volume $ term Capital and machinery(24. 2%) volume $ term Consumer goods(8. 3%) volume $ term Fuel (20. 9%( volume $ term Source : Compiled by FPO Fiscal Policy Office 25

Ministry of Finance, Fiscal Policy Office Tax Policy Bureau Economic Stimulus Measures 1. To increase welfare & support SMEs / enterprise community Objectives: 2. To promote real estate sector 3. To promote tourism 4. To promote debt restructuring and M&A Measures: Fiscal instruments: Tax policies, government spending Monetary instruments 26 Fiscal Policy Office

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

Ministry of Finance, Fiscal Policy Office Tax Policy Bureau 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): - E 20, E 85, and NGV - Hybrid Electric Vehicles - Electric Powered Vehicles - Fuel Cell Powered Vehicles - Eco car 28 Fiscal Policy Office

Ministry of Finance, Fiscal Policy Office Tax Policy Bureau 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

Ministry of Finance, Fiscal Policy Office Tax Policy Bureau Conclusion Fiscal Policy Office