Business Advisory firm focusing on company setup in Thailand, including BOI application, Thai limited, Immigration and labor consulting.

installment loans Rational for Adjusting the BOI Promotion Scheme

Earlier this year, the Board of Investment (BOI) has announced to change its current investment promotion regime. This is the first change in almost a decade. The new Investment Promotion Strategy 2013-2017 brings fundamental changes: while the investment promotion activities were broad in the past, they will become more prioritized and focused, while the old scheme was sector-based, the new one will be merit based, while the old regime promoted zones, the new one aims to create clusters, while the old regime mainly incentivized through tax breaks, the new strategy aims to make the BOI a facilitator. These changes affect the real nature of Thailand’s overall approach to investment promotions. In this short comment, we try to present the rational for these changes.

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The currently in place investment promotion regime dates back to the aftermath of the Asia Crisis in 1997. Thailand, arguably the source of the Asia Crisis, was severely hit. While between 1986 and 1995 the economy grew by an average of nine percent, the Asia Crisis caused a real melt-down: the Baht lost more than half of its value, the stock market dropped by 75 percent, more than 600,000 foreign workers were sent back to their home countries. Understandably, the government focused on reviving and recapitalizing the economy in a very broad manner – explaining the really broad nature of the current scheme. With the economy doing very well in the decade afterwards, it is more than understandable, that the investment promotion scheme become more focused and prioritizes certain industries.

Aiming to channel more money to research and development, the swift from a sector-based scheme to a merit based scheme becomes understandable. The more money is spent on research and development, both in absolute amounts and as percentage of revenues, the more attractive the granted tax incentives will be.

With the government introducing a nation-wide minimum wage of 300 Bath, one of the main incentives to locate investments in zone 2 and 3 areas disappeared. Reacting to that, the BOI decided to create, admittedly very vaguely defined, industrial clusters. The concrete incentives of locating projects within these clusters are not yet clearly outlined, also the procedure of how to define these clusters remains vague.

Lastly, the BOI redefines its own role. Currently, the main incentive investors have from establishing a project under its authority are tax breaks. Since many companies, especially in the manufacturing sector, benefit from such incentives, the Revenue Department foregoes tax income  on a large scale. Considering, however, that recently the overall income tax rates have been reduced, it is questionable whether obtaining a BOI promotion is worth the significant extra efforts and application brings with it.

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