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

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

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

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

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

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

Ministry of Finance, Fiscal Policy Office Tax Policy Bureau Fiscal Policy Office Value Added Tax (VAT) 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 Rate (%) -General goods and services 10 * -Exported goods and services 0 -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. Exempt reduce from 10% to 7% until Sept 30,

Ministry of Finance, Fiscal Policy Office Tax Policy Bureau Fiscal Policy Office Specific Business Tax (SBT) 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

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

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

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

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

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

Ministry of Finance, Fiscal Policy Office Tax Policy Bureau Fiscal Policy Office 3 Zones 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 Types of the priority projects 14

Ministry of Finance, Fiscal Policy Office Tax Policy Bureau Fiscal Policy Office Tax Incentives for export promotion MeasuresResponsibleOrganizationPrivileges 1. Duty Drawback under Section 19 bis CustomsDepartment Refund of import duties 2. Duty Compensation 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

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

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

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

Ministry of Finance, Fiscal Policy Office Tax Policy Bureau Fiscal Policy Office Global Crisis and Impacts to Thailand Global Thailand Financial Institutions Liquidity Issue Real Sector Declining asset value & writedown Crisis of confidence led to credit crunch and insolvency threats Lower income from contraction of global demand and production Lower Consumption Negative impact on our export-driven economy Limited impact in terms of liquidity Liquidity Problem & Lower Investment Ample liquidity in banking Sector Credit issues of corporates (particularly SMEs) Banks are reluctant to lend Unlike financial crisis in 1997, Thai financial institutions and corporates have stronger balance sheet Low leverage ratio Sufficient capital base Low NPL ratio Capital & Liquidity to Support Recovery 312 Limited impact as Thai banks have only 0.4% related to CDOs 132 Note: (1) Thai banks have only 1.2% of total assets exposed to foreign assets (2) Export accounts for 72% of total GDP Contraction in export Lower capacity utilization Increase in unemployment Dampened consumer confidence Overclouded by political crisis ? 19

Ministry of Finance, Fiscal Policy Office Tax Policy Bureau Fiscal Policy Office Real GDP Q4/2008 Contracted -4.3 % yoy % % %. Source : National Economic and Social Development Board 20

Ministry of Finance, Fiscal Policy Office Tax Policy Bureau Fiscal Policy Office Growth rate : %YOY (Share of GDP) Q1Q2Q3Q4DecJan  Real private consumption(51.8%) Private consumption indicator  Real value added tax  No. of passenger car sales  Motorcycle sales Agricultural Price Import of consumer goods (value)  Import of consumer goods (volume)  Consumer confidence index Thailand’s Economic Indicators : Private Consumption Note: Real VAT (Feb 09): -24.2% YOY; CCI (Feb 09): 67.2 Source : Compiled by FPO 21

Ministry of Finance, Fiscal Policy Office Tax Policy Bureau Fiscal Policy Office Growth rate : %YOY (Share of GDP) Q1Q2Q3Q4DecJan  Real private investment (16.6%)  Private investment in machinery (12.8%)  Private investment in construction (3.7%) Private investment indicator  Import of capital goods (volume)  Import of capital goods (volume) excluding special items* Commercial car sales  Real estate tax collection**  Domestic cement sales 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 Thailand’s Economic Indicators : Private Investment Source : Compiled by FPO 22

Ministry of Finance, Fiscal Policy Office Tax Policy Bureau Fiscal Policy Office Unit (billion Baht) Q1Q2Q3Q4DecJanFeb Net revenue1,470.41, %y-o-y Income-based tax %y-o-y Consumption-based tax %y-o-y Government expenditure (1+2) 1,668.11, %y-o-y Current expenditure 1,273.21, %y-o-y Capital expenditure %y-o-y Carry over %y-o-y Thailand’s Economic Indicators : Fiscal sector Source : Compiled by FPO

Ministry of Finance, Fiscal Policy Office Tax Policy Bureau Fiscal Policy Office Growth rate : %YOY (Share of GDP) Q1Q2Q3Q4DecJan Real export (56.8%) Value $ term (Custom Dept.) Price $ term (Ministry of Commerce)  Volume $ term (FPO) 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 Thailand’s Economic Indicators : Export Source : Compiled by FPO

Ministry of Finance, Fiscal Policy Office Tax Policy Bureau Fiscal Policy Office Growth rate : %YOY (Share of GDP) Q1Q2Q3Q4Dec Jan Real import (45.6%) Value $ term (Custom Dept.) Price $ term (Ministry of Commerce)  Volume $ term (FPO) 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 Thailand’s Economic Indicator : Import Source : Compiled by FPO 25

Ministry of Finance, Fiscal Policy Office Tax Policy Bureau Fiscal Policy Office Economic Stimulus Measures Objectives: 1.To increase welfare & support SMEs / enterprise community 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

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

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

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

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