Thailand is now faced with the inevitable task of imposing a top-up tax on transnational firms operating within its borders, in compliance with the global requirements of the Global Minimum Tax (GMT). This tax policy imposes a formidable challenge for the government as it seeks to maintain the nation's competitiveness and continue attracting vital foreign direct investment (FDI).
The Revenue Department is planning to introduce a 15% top-up tax measure next year, following Vietnam's implementation of the tax earlier this year. If Thailand does not impose this tax, multinational companies operating in the country will still be required to pay the GMT in their home countries or other foreign jurisdictions where they are registered. This could result in Thailand missing out on potential tax revenue, as the top-up tax would be collected elsewhere instead of benefiting the Thai economy.
The GMT is the Organization for Economic Cooperation and Development's initiative. This will see multinational companies with revenue over US$80 million (2.7 billion baht) pay a tax of at least 15%, regardless of where their operations are. A company currently paying less than 15% tax, possibly from tax incentive provided by countries to woo them to invest, is required to pay a top-up tax covering the difference.
The measure will make it more challenging for countries like Thailand, which has made use of tax incentives as a primary tool to attract FDI. With GMT, traditional tax incentives, such as reduced corporate tax rates or exemptions, will lose their attractiveness because they won't result in lower taxes for multinational firms.
So, the Paetongtarn government must act fast to find measures to mitigate the impact of the GMT. Direct tax subsidies are not a viable option as a supporting measure. It is imperative the government, along with agencies such as the Revenue Department and the Board of Investment, collaborate to develop strategies that will prevent Thailand from losing its competitive edge in attracting foreign investment.
To cope with this new landscape, it is also crucial that both the government and the private sector work together to develop strategies to reduce the negative impacts of GMT on FDI. The government and private sector must collaborate to develop strategies that mitigate the impact of the GMT on foreign investment. The government should offer targeted incentives, revise investment policies and engage in transparent dialogue with businesses to maintain competitiveness.
Meanwhile, the private sector, particularly multinational corporations, must also play a role in adapting to the new tax environment. Firms should conduct thorough assessments of their tax strategies and explore ways to optimise operations within the framework of GMT. This may involve restructuring their business models, diversifying their investments or seeking out new markets that offer better returns. It's worth noting that the introduction of this supplementary tax doesn't have to result in negative outcomes. By introducing the right strategies and replacing tax breaks with enhanced spending on infrastructure, a good ecosystem for businesses or other alternative incentives, foreign investors in Thailand might actually gain greater advantages over time.
More sophisticated incentives beyond tax measures need to be developed to ensure Thailand remains an attractive investment destination. Human resource development, along with reskilling and upskilling the workforce, will be crucial in shaping Thailand's future investment landscape.