BANGKOK – Foreign companies have less than two years to benefit from Thailand’s current tax-break structure as the country is changing its incentives in a bid to reduce its dependence on cheap labour and focus on higher value-added goods and services.
In 2015, the south-east Asian country will end the current system of corporate tax breaks based on geography and replace it with one giving preference to specific industries based on as-yet undefined national priorities.
While this means Australian businesses such as auto parts and manufacturing and food processors will continue to benefit from the exemptions on the country’s 20 per cent corporate tax rate, those from other industries that do not fit Thailand’s national list of priority industries will find it harder.
A lack of clarity about what those national business priorities will be is concerning local businesses such as the industry parks dotted around the country, which have over the past two decades become hubs for sectors such as electronics and auto manufacturing.
“In the future we don’t know what will come out,” says Witaya Launglueyos, the senior general manager of Rojana Industrial Park in Ayutthaya province, 70 kilometres north of Bangkok. Rojana focuses on high-end electronics, while others, such as estates run by rival Hemaraj in the south-eastern Rayong province, focus on the automotive industries.
With the its own labour rates already being undercut by those of the workforce in neighbouring countries such as Indonesia, Myanmar, Vietnam and Cambodia, Thailand is seeking to improve the technical skills of its own workers and foster the long-term development of industries it can sustain even in the face of relatively higher labour rates.
“We will go more high-tech,” says Wirat Tatsaringkansakul, the Thailand Board of Investment’s Australia director.
Thailand’s current minimum wage is $US10 ($10.94) per day, twice the $US5 of Indonesia and Myanmar and well above Vietnam’s $US3 and Cambodia’s $US2. Singapore has a lower corporate tax rate than Thailand of 17 per cent, while in Vietnam, Malaysia and Indonesia, the figure is 25 per cent. In Australia, it is 30 per cent.
A tiered scale of corporate tax exemptions, with the highest being an eight-year holiday on corporate tax payments with a 50 per cent reduction for a further five years, applies to investments based partly on where they are located, with those furthest away from the capital Bangkok receiving the biggest break.
The incentives already partly depend on industry. Agriculture and agro-processing, software development and biotechnology are some highlighted by the country’s official Board of Investment, meaning that investors in these industries can qualify for the maximum benefit irrespective of where they are based. Within two years, however, the geographical filter will cease to exist, and industry type alone will be the sole determinant.
The car industry is also a priority. Thailand-based carmakers, which include Toyota, Ford and Mazda, Mitsubishi, Honda, Nissan and General Motors, had a combined production capacity of almost 2.7 million vehicles last year – more than ten times Australia’s annual production – and this is expected to rise to 3.1 million by 2015.