Tax reform among 2016's big changes

Tax reform among 2016's big changes

Other major developments include the 4G revolution, start of megaprojects, IUU decision and the AEC.

Fishermen arrange nets on Chalatat beach, Songkhla. The EU has accused Thailand of illegal, unreported and unregulated fishing. (Photo by Patipat Janthong)
Fishermen arrange nets on Chalatat beach, Songkhla. The EU has accused Thailand of illegal, unreported and unregulated fishing. (Photo by Patipat Janthong)

As the country needs substantial funds to finance public investment in infrastructure projects and the rising costs of retirement schemes in an ageing society, the Finance Ministry has pursued comprehensive tax reform to avert a potential fiscal time bomb.

As the country needs substantial funds to finance public investment in infrastructure projects and the rising costs of retirement schemes in an ageing society, the Finance Ministry has pursued comprehensive tax reform to avert a potential fiscal time bomb.

A recent study by the Fiscal Policy Office (FPO) showed that annual funding needs for such schemes will surge to 873 billion baht by 2025 from 291 billion or 2.2% of GDP in 2015. 

The tax overhaul, in which inheritance tax, cuts in personal income tax and adjustments of tax allowances and deductions, and land and buildings tax are integral parts, also aims to reduce economic inequality and sharpen the country’s competitiveness.

Given that a meagre 1% of tax revenue is contributed from taxes on assets — homes and land along with local development taxes — the Finance Ministry has tried to raise this type of tax to balance the revenue structure.

Inheritance tax is the first tax on assets pushed by the ministry and will come into effect this month.

However, the original version of the inheritance tax bill proposed by the government, seeking a 10% levy on bequests exceeding 50 million baht, was watered down by the National Legislative Assembly to 5% of the amount above 100 million baht for descendants and 10% for others.

For gifts, 5% applies to portions above 20 million baht when the beneficiaries are descendants. For non-descendant beneficiaries, the same rate applies but is calculated from portions above 10 million baht.

Reducing the highest personal income tax bracket from 35% is expected in early 2016. The aim is to narrow the gap with the 20% corporate income tax to reduce tax evasion. Corporate tax plus withholding tax on dividends stands at 28%.

The Finance Ministry also wants to raise the decades-long cap of allowances for annual expenses from 60,000 baht to be suitable for the current situation.

A draft bill on the controversial land and buildings tax is expected to seek cabinet approval by 2017, but it is likely that people who have never been taxed on their assets will be exempted in a bid to earn public acceptance.

The FPO has set the tax ceiling rates at 0.2% of appraisal value for land used for agriculture, 0.3% for residences and 1% for land for commercial use.

Undeveloped land would be taxed at 1% for the first three years before doubling to 2% for the next three years and hitting the 3% ceiling in the seventh year.

The actual tax rate would be levied at progressive rates. Agricultural land would be charged at 0.01% if the appraised price is no more than 2 million baht or up to 200 baht a year, while land worth more than 100 million would be taxed at 0.1%.

Residences appraised at no more than 2 million baht would be taxed at 0.03% or up to 600 baht a year, while homes priced more than 100 million would be charged at 0.2%.

Commercial land would be taxed at 0.1% or up to 2,000 baht a year if the appraisal value is less than 2 million baht and at 0.6% for land valued at more than 1 billion.

Exemption from land and buildings tax will become more likely if the government manages to connect the planned national e-payment system with the Revenue Department’s taxation system.

The government plans to enforce procurement law to stem budget leaks, enhance transparency and prevent corruption. The integral parts of the law are allowing the public to take part in bidding, extending penalties for officials and politicians involved in corruption, and changing e-auctions to e-bidding and e-markets.

New vehicle excise tax comes into force

From today, vehicles sold in Thailand will be subject to a new excise tax based on carbon dioxide (CO2) emissions, E85-gasohol compatibility and fuel efficiency rather than engine size as in the past.

The new structure aims to encourage manufacturers to update their vehicles to be compatible with E85 as well as to produce eco-cars at reasonable prices.

Several taxes are applied when purchasing a vehicle — a tariff collected by customs, excise tax collected by the Excise Department, tax collected by the Interior Ministry and annual taxes collected by the Department of Land Transport.

With the new excise tax structure, passenger cars with CO2 emissions of 150 grammes per kilometre or below will be subject to a 30% excise tax, those with 150-200g/km at 35% and more than 200g/km at 40%. Cars with E85-gasohol compatibility will be charged an excise tax less than 5% at each carbon emission level.

Eco-cars are required to emit less than 100g/km, lowering their tax rate to 12-14% from 17%.

The most affected segments are likely to be large pickups, passenger cars, pickup passenger vehicles (PPVs) and sport-utility vehicles (SUVs) which normally have high emissions.

The Excise Department estimates the prices of SUVs will increase by 50,000 to 300,000 baht per vehicle and those of PPVs by 70,000 to 190,000 baht. Passenger cars will go up by 40,000 to 500,000 baht depending on fuel type, while eco-cars will be unchanged.

The prices of pickup trucks will increase by another 8,000 to 30,000 baht apiece, while the price of hybrid vehicles releasing CO2 exceeding 100g/km will rise by 70,000 to 480,000 baht.

The Federation of Thai Industries estimated Thailand’s vehicle output at 1.95 million units in 2015, ranking 12th among the world’s car-making countries, unchanged from 2014, while exports of completely built units would increase by 6.4% to more than 1.2 million units. Domestic car sales were estimated at only 750,000 vehicles in 2015, down 15% from 881,832 vehicles in 2014.

The first-time car buyer scheme and strong demand after floods propelled domestic car sales to 1.45 million units in 2012 and 1.33 million in 2013.

4G revolution to upend old order in telecom

Thailand’s telecommunications industry will undergo a major revolution in 2016, driven by the new fourth-generation (4G) technology and changes in user requirements.

The country’s telecom landscape will experience wholesale change in the new year as operators redefine their strategies and transform their organisations to retain growth and stay relevant in the market.

Major telecom companies have announced the launch of nationwide 4G service in 2016, including state enterprises TOT Plc and CAT Telecom.

Mobile leader Advanced Info Service Plc (AIS) aims to have at least 2 million 4G subscribers in the first year of its commercial 4G operations.

Second-ranked Total Access Communication Plc (DTAC) and third-ranked True Move expect to double their 4G subscriber base to 4 million each.

Newcomer JAS Mobile Broadband, a subsidiary of Jasmine International Plc and winner of a 900-megahertz licence to provide 4G service, aims to have 2 million 4G subscribers of its own in 2016.

The National Broadcasting and Telecommunications Commission (NBTC) expects the total number of mobile subscribers to reach 150 million in 2016, up from 110 million in 2015. At least 10% of those 150 million subscriptions will be for 4G wireless broadband, according to the regulator.

Mobile data service will be the key factor behind rapid 4G adoption. Thailand’s mobile data market is forecast to grow by 600% by 2020, the NBTC said.

Video streaming and machine-to-machine communication will be key drivers of the increased need for mobile connections.

The NBTC sees the number of mobile subscribers in Thailand surging three or four times by 2020, thanks to the emerging Internet of Things and greater use of high-speed wireless broadband in many industries, especially logistics and security.

Global research firm IDC expects internet browsing in Thailand to make up 32% of mobile internet usage in 2020.

The trend of greater data consumption means that operators who hold a wider spectrum bandwidth will take better advantage than rivals.

True Move is being watched the closest by the industry as the company holds the most bandwidth: a combined 55 MHz on various frequencies.

True Move became the first 4G operator in Thailand more than two years ago. The company’s subsidiary True Move H Universal Communication won both an 1800- and a 900-MHz licence at marathon auctions in November and December.

AIS is the only one of the big three that is yet to launch commercial 4G service. It won a 1800-MHz licence to provide 4G service but failed to secure a 900-MHz licence. AIS has 30 MHz of bandwidth each on the 1800- and 2100-MHz spectra.

The country’s biggest mobile operator has vowed to launch a premium 4G service and maintain its leadership position in the overall mobile market.

JAS Mobile Broadband said it wanted at least a 10% share of the mobile market by 2018. The company secured 10 MHz on the 900-MHz spectrum. Its business model is to offer Thai consumers the cheapest 4G option with faster service.

A passenger boards a train at Hua Lamphong station in Bangkok. (Photo by Panupong Changchai)

Large infrastructure projects set to begin

A flood of big-ticket infrastructure projects including five mass transit routes in Bangkok and three planned motorways are scheduled to start bidding and construction in 2016.

The cabinet on Dec 1 approved action plans for 20 large infrastructure projects worth a combined 1.79 trillion baht, part of the government’s urgent strategy to kick-start an ambitious development plan from 2015-22.

The government hopes to start construction of the projects in 2016, helping to raise Thailand’s economic growth by 1% next year.

The accelerated development plan will divide the 20 projects into two parts, with seven projects already approved by the cabinet.

The projects are the double-track rail network linking the Jira intersection in Nakhon Ratchasima to Khon Kaen; the Pattaya-Map Ta Phut motorway; Bang Pa-in-Saraburi-Nakhon Ratchasima motorway; development of Laem Chabang deep-sea port; container terminal development at Laem Chabang; the second phase of Suvarnabhumi airport’s expansion; and the Orange Line mass transit development project linking the Thailand Cultural Centre to Min Buri.

The combined cost of the seven projects is 281.4 billion baht. Bidding for some of the projects has already started, with construction to begin in 2016, while the remaining 13 projects will see bidding and construction from 2016-17.

The 13 projects include the four lines of intercity double-track rail network (Nong Khai-Khon Kaen-Nakhon Ratchasima-Kaeng Khoi (Saraburi)-Chachoengsao-Si Racha-Map Ta Phut; Bangkok-Phitsanulok-Chiang Mai; Bangkok-Hua Hin; Bangkok-Rayong) and Bangkok mass transit routes (the Pink Line from Khae Rai to Min Buri; Yellow Line of Lat Phrao-Samrong; Light Red Line of Bang Sue-Phaya Thai-Makkasan-Hua Mak; Dark Red Line of Bang Sue-Hua Lamphong; and Purple Line of Tao Pun-Rat Burana).

Another project is the Bang Yai-Kanchanaburi motorway construction.

The transport infrastructure plans conformed to the government’s fast-track public-private partnership strategy by putting five projects worth a combined 334 billion baht on the front burner. They are the Pink, Yellow and Blue Line routes in Bangkok worth 194 billion baht and the Bang Pa-in-Saraburi-Nakhon Ratchasima and Bang Yai-Kanchanaburi intercity highways worth 140 billion.

Seafood exporters await EU decision on ban

The European Union (EU) is set to announce this month the results of its latest review of Thai fisheries and whether to lift a yellow card or issue a red card, which would mean an automatic ban on Thai fish imports.

However, the business sector believes that, irrespective of the EU verdict, tuna exports will still decline by 10% in 2016.

The EU accuses Thailand of having illegal, unreported and unregulated (IUU) fishing.

The yellow card was a wake-up call for Thailand to clean up its fishing industry to avoid EU punishment. Trade sanctions could cost Thailand’s seafood industry more than US$200 million, according to Siam Commercial Bank’s Economic Intelligence Center.

The government has been pursuing all means to upgrade and overhaul the fishery system for the first time in decades to prevent the EU ban.

Prime Minister Prayut Chan-o-cha has also used Section 44, which allows the use of military force for some civil issues, to tackle illegal fishing and make the EU feel more confident about Thailand’s attempts to combat the problem.

Chanintr Chalisarapong, president of the Thai Tuna Industry Association, said after trying all means to meet EU standards, operators were confident they were on the right track.

He said the tuna export value was expected to drop by 10% in 2015 from 90 billion baht in 2014 due to falling prices of finished products, which were in line with falling raw material prices.

Mr Chanintr said the export value of tuna was expected to drop by another 10% in 2016 no matter what action was taken by the EU against Thailand.

Tuna and fishery product exporters have been diversifying into other markets to avoid risks that might affect them if the EU imposes a trade ban.

Integrated regional market a reality

The idea of an economic bloc in Southeast Asia has finally become a reality, with Asean yesterday having undergone one of its most profound changes — integrating into a single market, the Asean Economic Community (AEC).

The AEC will create a single bloc of 625 million people with a huge market worth US$2.6 trillion, making the region more attractive than any single nation and boosting its long-term prospects.

The AEC aims to create a single market and production base to improve the competitiveness of the 10 Asean countries, with free mobility of goods, services, investment, capital and skilled labour. Free mobility of labour is a significant element, as all businesses and economies rely on manpower.

Under the pact, six countries — Malaysia, Brunei, Indonesia, the Philippines, Thailand and Singapore — agreed in 2010 to waive import tariffs on 99.2% of all product items except for certain sensitive products, while Cambodia, Laos, Myanmar and Vietnam would follow suit, waiving import tariffs on 90.9% of all items in late 2015.

Sensitive products are rice, sugar, vegetables and certain types of fruits and meat, coffee and tapioca.

Since the agreement was signed in 2007, Asean members have also tried to create a single standard for professional qualification screening to serve the free flow of labour for seven key professions (medicine, dentistry, nursing, engineering, architecture, surveying and accounting) and one sector (hotels and tourism).

Work has already started to establish longer-term goals, set out in the AEC Blueprint 2025 endorsed by leaders at the Asean Summit in Kuala Lumpur in November 2015. The blueprint sets a path for regional progress after economic integration, focusing on opening up the service sector, tackling trade and investment barriers and upgrading product standards.

At the summit, Asean and China agreed to upgrade the Asean-China Free Trade Agreement (ACFTA) to streamline and enhance economic cooperation. The protocol includes amendments to the agreement on goods, services, investment and economic and technical cooperation.

China vowed to open its construction engineering, securities, travel agency and tourism operator sectors, while Asean members promised to open their service sectors to China, including commerce, telecommunications, construction, education, finance, tourism and transport. Both sides will be allowed to establish solely-owned or joint venture companies via reduced restrictions.

China is Asean’s largest trade partner, while Asean is China’s third-largest. Bilateral trade volume has surged from $54.8 billion in 2002 to $480 billion. The two sides are targeting bilateral trade of $1 trillion by 2020.

Pornsil Patchrintanakul, an adviser to the Thai Chamber of Commerce, said the regional trade structure was unlikely to change much despite integration as the application is largely about waiving tariffs. Higher shipments for daily-use products are anticipated over the next five years, but consumer product makers are expected to set up production bases in neighbouring countries.

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