From next Tuesday, foreign companies opening regional head offices in Thailand can enjoy a package of tax incentives that is claimed to be the best in the region in an attempt to lure more foreign investment.
Announced by Deputy Finance MinisterPradit Pataraprasit yesterday, the regional headquarters will have to pay no income tax on their earnings from the services they provide to overseas companies, and they will pay corporate income tax at only 10 per cent on income they receive for services provided to entities inside Thailand.
For up to eight years, expatriate employees will pay personal income tax at just 15 per cent. “Thailand’s offer is the most competitive incentive package in the region for such regional operating headquarters,” he said.
Although private investment has joined the rebound in Thai economy, the outlook remains weak relative to other demand
The medium-term outlook is sobering, with growth expected at 3.5 percent in 2010 and likely remaining below potential for the next three years. Because the Thai economy is largely dependent on final demand in advanced economies, a return to pre-crisis rates of economic growth (a full recovery vs. a rebound to pre-crisis levels) will require a combination of (a recovery of demand from advanced economies and a rebalancing of the sources of growth to reduce Thailand’s dependence on demand from advanced economies. Neither process is likely to be swift. Recovery from a financial crisis is a lengthy process that involves the rebuilding of balance sheets, and the IMF estimates that half of the losses in the financial system in advanced economies are yet to be recognized.
Thailand’s GDP growth remains largely tied to external demand and developments in advanced economies will continue to dominate the path of the economy in the short- and medium-term. The external environment has been relatively more favorable in the past six months as the effects of fiscal and monetary stimulus are felt and inventories in the advanced economies are being replenished, supporting production into the medium term. However, full recovery from the financial crisis and a return to high rates of import demand growth in developed countries is not expected in the near term, as US consumers have to rebuild their balance sheets following a decrease in wealth in the order of US$14 trillion while employment prospects remain weak. As a result, growth rates of high income countries are expected to be subdued at under 2 percent in 2010, implying continued weak demand for Thai exports.
Shipments to emerging East Asia already surpassed the 2008 peak level but those to EU, Japan and ASEAN are slow.
Despite the rebound, Thailand’s export recovery is still subject to several downside risks. A recent export pickup in East Asia benefits mainly from coordinated and massive policy responses in G-3 economies and China that have boosted their demand for imports, and inventory re-stocking worldwide that followed a swift and large de-stocking in early-2009 as orders fell less than production. These two factors are temporary, as governments have to unwind injections to maintain fiscal discipline and companies resume their normal stocking levels. In fact, data shows that US inventory-to-shipment ratios for computers, electronic products, and electronic appliances started to rise again in August and September, thus leading to weaker new orders . This likely adds pressure on Thailand’s electronic shipments to the US in the coming months.