Economic incentives encourage foreign investment in Thailand

 

With plans to boost foreign investment in key industries, the government announced a series of new incentives and support mechanisms in late 2016 and early 2017. These new measures – many of which will be administered through the Board of Investment (BOI), the government’s investment promotion arm – are set to come into force in the first quarter of 2017. Incentives will be made available and prioritised for high-value and innovative activities, with a focus on the network of special economic zones (SEZs) under development.

Legislative Reforms

To encourage investment inflows the government introduced the National Competitiveness Enhancement Act for Targeted Industries in February 2017. Known as BOI Plus – and part of the broader Thailand 4.0 economic reform programme – the legislative package includes measures to incentivise foreign investment from targeted industries that are either new to Thailand, or that use new, sought-after technology or leading know-how.

The act has identified 10 targeted industries: smart electronics; automotive and auto parts, including electric cars; medical and wellness tourism; agriculture and biotechnology; food; robotics for industry; logistics and aviation; biofuels and biochemical; digital; and medical services. While many of the measures included in the new legislation mirror existing BOI incentives, the exemption from corporate income tax and withholding tax on dividends has been extended to 15 years.

In addition, BOI Plus has established a government-supported competitiveness enhancement fund with an initial budget of BT10bn ($282m) to subsidise eligible projects. Two committees will implement the act and screen proposed projects: the Policy Committee and the Nomination and Negotiation Committee. The former will be responsible for specifying strategically important industries, as well as setting guidelines for investor selection and qualification for incentives. Meanwhile, the latter will actively identify and negotiate with potential investors to provide said incentives.

Initial targets for the programme are investors from Japan, mainland China, Taiwan, the UK, Germany, France, the Netherlands, India and South Korea, while Suvit Maesincee, the deputy minister of commerce, said that special emphasis would be placed on projects offering high value added and technological transfer.

Measuring Up

These new measures come on the back of a January 2017 announcement from the BOI that it had approved six projects with a total value of more than BT24.5bn ($690.2m). The largest of the deals was made with domestic firm NokScoot Airlines, which plans to launch two air transport services for freight and cargo, both domestically and internationally, at a total investment value of BT8.8bn ($247.9m).

The new projects look set to build on the solid investment growth trajectory of 2016, with total investment reaching BT584bn ($16.5bn), a 196% increase on the 2015 figure. Foreign direct investment (FDI) totalled BT301bn ($10.7bn) in 2016 – a substantial increase on the BT93.8bn ($2.6bn) recorded in 2015 – with Japan, Singapore, China, Hong Kong and the Netherlands among the biggest contributors.

With the release of BOI Plus, government officials are looking to increase the investment value of new incentive applications to BT600bn ($17.2bn) in 2017, up from last year’s target of BT550bn ($15.5bn), with petrochemicals and the high-tech industry reported to be among the areas earmarked for growth.

Sez Potential

The government is hopeful that the 10 SEZs currently in development will play a central role in driving these investment gains. Thailand has lagged behind some of its ASEAN counterparts in the development of such zones, which were approved by the authorities in 2014. Laos, for example, has already completed eight SEZs and is looking to add another 13 by 2020. However, with the incentive framework for the zones now in place – including exemptions on import duties for machinery and raw materials, and loans at low interest rates – activity looks set to accelerate.

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The Report: Thailand 2017

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