Thailand’s Board of Investment to Revise its Investment Promotion Strategy

Date: Feb 2013

by Stephen Frost, Bangkok International Associates

Introduction: The Board of Investment is the Thai government agency responsible for encouraging investment by Thai and foreign investors by a system of corporate tax holidays and other incentives, such as import duty exemption on machinery and raw materials used in the business, double tax allowance for utility bills, permission for promoted majority foreign owned Thai companies to own land used in the promoted business, and permission for a promoted business listed in Schedule 2 or 3 of the Foreign Business Act to be majority foreign owned.

In January 2013, the BOI published an Investment Strategy paper intended to apply for the years 2013-17, for public discussion and comment. In this article, we summarise the main aspects of the proposals.

Strategic approach: The strategic approach of the paper is described in this way:

  • The previous broad based-investment promotion policy is to be replaced by a policy for focused and prioritized promotion. This means that a large number of activities that were eligible for promotion in the past will cease to be eligible. The incentives available will also be revised, for example, 8, 5 or 3 year corporate tax holidays may be available, depending on the assessed priority (in some case subject to a tax cap), or possibly only customs duty exemption on imported machinery or rare materials.

  • Sector based incentives are to be replaced by sector and merit based incentives. Tax incentives are also revised (note: Thai corporate tax is now only 20%, so CIT exemption has less importance than in the past). There is emphasis in encouraging R & D, and environmental protection.

  • The previous zoning policy whereby Thailand was divided into three zones for investment purposes, is abolished, and replaced by a policy to promote regional clusters. Eight clusters are defined: food processing; halal food processing; rubber, fashion; entertainment, aerospace, science and technology; and the three southernmost provinces.

  • The emphasis on tax incentives is to be replaced by a policy of tax incentives and facilitation of projects. There is keenness to encourage the One Stop One Service (OSOS), improve investment rules, promote human resources, and integrate support from other government agencies.

  • The policy of promoting inbound investment is replaced by a policy to promote inbound and outbound investment

  • The current emphasis on evaluation of applications will be replaced by evaluation by outcome.

Development of this strategic approach: The strategy paper goes on to explain in detail an emphasis on 10 key areas of business activity:

  1. Basic infrastructure and logistics: e.g. industrial zones, power generation form natural gas, tap water or water resources for industrial services, transport and mass transit, commercial airports and logistics centers.

  2. Basic industry: e.g. steel, petrochemicals, pulp and paper, machinery

  3. Medical devices and scientific equipment: e.g. medical devises, medicine, medical food, scientific equipment

  4. Alternative energy and environmental services: e.g. power generation from renewable energy, recycling, wastewater treatment and industrial estates disposal services, energy services company.

  5. Services supporting the industrial sector: e.g. R & D, HRD, engineering design, software, calibration services, ROH, Trade and Investment Support Office.

  6. Advance core technologies: e.g. biotechnology, nanotechnology, advanced material technology.

  7. Food and agricultural processing industry: e.g. processed food, food additives, herbal extracts, plant propagation and development, products from natural rubber, biofuel

  8. Hospitality and wellness: e.g. tourism and sports promotion, Thai motion pictures promotion, health centres, retirement homes, care centres.

  9. Automotive and transport equipment: e.g. cars, motorcycles, trains, electric trains, aircraft, shipbuilding and maintenance.

  10. Electric and electrical appliances: e.g. electronic design, organics and printed electronics, HDD and SSD and parts, solar cells, white goods.

Summary of the changes: In summary:

  • Approximately 100 activities will be granted corporate tax exemption, of which 30 may receive the maximum eight year CIT exemption.
  • Approximately 30 activities will be granted exemption from import duty on imported machinery and raw materials and non-tax incentives.
  • Approximately 80 activities will cease to be eligible for promotion.

The new list of eligible and ineligible activities can be summarized by industrial sector as follows:

  1. Agricultural and agro-industry: 10 eligible activities: 12 deleted activities
  2. Mining, ceramics and basic metals: 16 eligible activities: 9 deleted activities
  3. Light industry: 10 eligible activities: 20 deleted activities
  4. Metal products: 19 eligible activities: 12 deleted activities
  5. Electronics industry and electrical appliances: 26 eligible activities: 1 deleted activity
  6. Chemicals, paper and plastics: 11 eligible activities: 11 deleted activities
  7. Services and public activities: 29 eligible activities: 16 deleted activities

BOI support and facilitation: In future, the BOI will seek to play a role of support and facilitation, to encourage reform of laws and to create a positive investment image, it will encourage the creation of regional or border clusters, emphasize human resource development, and encourage outbound investment.

BOI encouragement for outbound investment: The paper expresses a desire for the BOI to encourage outbound investment. This will prioritise the sourcing of materials that Thailand lacks, expansion of markets, and expanding the attractiveness of Thai products in the global market. A target list of countries is included.

Comments: How will current and prospective investors react to these changes in BOI strategy? These proposals reflect strategic governmental priorities to encourage new high-tech industry and environmentally-friendly activities to enter Thailand, and a turning away from low-tech manufacturing which often caused environmental damage in the past. The business activities that will now become ineligible for BOI privileges are lengthy and wide-ranging. Will investment in categories of business still eligible for promotion, increase to surpass activities that will now become ineligible?

The proposals will affect new businesses that may be considering entry into Thailand, and also existing businesses that might be considering applying for BOI privileges to manufacture other product lines. Investors will also have to take into account other recent developments: the reduction of corporate tax to 20%, the 300 Baht national daily minimum wage, and the reduction in social security contributions from 5% to 4% for 2013.

Regarding privileges for outbound investment, these are not fully worked out. It is not absolutely clear what categories of business activity will be eligible, and whether only Thai-majority owned businesses be allowed to apply, or any Thai registered company. What privileges will be offered, e.g. tax exemption when dividends are repatriated to Thailand, or other benefits? For what period of time will the privileges apply? This area is lacking in detail in the strategy paper.

For many years, commentators have stressed the importance of investment in activities that are beneficial for Thailand’s long term development, such as: education and vocational training, and English and other language skills. It is disappointing that these feature only to a small extent in the strategy paper.

Investors who are considering setting up operations and applying for BOI privileges for activities that may be ineligible for promotion, may think it prudent to apply now, before the regulations are changed. They should also ensure that the scope of privileges offered are suitable for them, before acceptance.

These proposals are being circulated for public discussion and debate. In March 2013, the BOI hope to prepare a final list of proposals which will then be implemented.

© 2013 Stephen Frost, Bangkok International Associates

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