Thailand should put more effort into improving the business environment to attract foreign direct investment instead of creating further tax incentives, says an economist.
"Further increasing tax incentives will not help attract more foreign direct investment to Thailand, as the country is already offering the best incentives in the region," said Athiphat Muthitacharoen, a lecturer in the Faculty of Economics at Chulalongkorn University.
Instead, he advises Thailand to focus on improving the business environment and change the requirements to be more selective of companies allowed to invest in the country.
"Further expanding tax incentives is not worthwhile [compared with the cost] and will not help attract significant increases in foreign direct investment, as Thailand is offering the most attractive incentives among Asean countries," Mr Athiphat said.
He cited a study entitled "Assessing Tax Incentives for Investment: Case Study of Thailand", done in coordination with the Puey Ungphakorn Institute for Economic Research, the Bank of Thailand's economic think-tank.
Mr Athiphat said Thailand is offering an effective tax rate for foreign investors of 7.6%, a lower rate than offered by peers in the region such as Indonesia (13.9%), Malaysia (12%), the Philippines (17.9%) and Vietnam (9.9%).
The effective tax rate was calculated based on the highest incentive offered by each country, including tax holidays and other incentives, as well as other taxes related to foreign companies such as withheld taxes and those related to bilateral agreements.
Mr Athiphat said that in fiscal 2016 the Thai government lost 200 billion baht worth of income (2% of GDP) by offering these tax incentives, creating the need to be mindful of the incentives' effectiveness.
He said the government as a result should focus on other measures that will improve the country's business environment by reforming institutions and amending regulations, which according to the study are equally as important as tax incentives.
"Clearer regulations could also help prevent foreign companies from miscalculating taxes, which damages the country's investment image," Mr Athiphat said. "The Board of Investment is moving in the right direction in shifting from area-based to sector-based incentives, but more requirements could be used to help attract appropriate companies."
He said that as President Donald Trump's administration aims to slash the corporate income tax to 15%, US companies in Thailand might try to find a way to transfer profits back to the US to take advantage of lower tax rates.
Mr Athiphat said these companies can indirectly transfer profits by adjusting the price of goods transferred to the parent company to make it higher than the actual price.
"Thailand is still waiting for laws to prevent this," he said. "A draft bill has already been approved by the cabinet and should be able to help prevent that loophole."