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Copyright SGA 2003

Thailand and Australia prepare for Free Trade Agreement to Commence

In October 2003 Australia and Thailand reached an agreement on the Thailand-Australia Free Trade Agreement (TAFTA). In April 2004 trade representatives of the two countries signed the agreement. Come January 1, 2005 the agreement will go into effect, eliminating 83.2% of Australian tariffs on Thai imports and 52.6% of Thai tariffs on Australian goods. Restrictions on the remaining goods will be phased in with deadlines set for January 1, 2010 and then through the years 2015-2020. The agreement is comprehensive in that it covers trade in goods and services, as well as investment. Trade between the countries is quite large, accounting for two-way trade of nearly 6 billion Australian dollars in 2003. In addition to schedules for elimination of trade barriers, the agreement also allows for safeguard mechanisms that can be applied in the event of an import surge that threatens either of the two nation's domestic industries. Thailand is Australia's 12th-largest export market, taking vehicles, aluminum, cotton, copper, wool, and dairy goods, and the 13th-largest source of imports, importing seafood, heating and cooling equipment, computers, and crude oil, among other products. Australia has free trade agreements with New Zealand, Singapore, and the United States. The agreement is the first between Thailand and a developed nation. Negotiations between Thailand and the United States for a similar FTA are currently underway.

Increase in Land Tax to be Gradually Implemented

As of early August, the government was expected to pass a new law that would increase property taxes in the Kingdom. A source at the Fiscal Policy Office stated that while some of the tax rates are expected to increase by a large percentage, the actual percentage of taxes in relation to property values would remain quite low. For example, the tax on rental revenues will actually lower tax rates a small percentage, but exemptions from the law will be eliminated. Technically the tax rates will be lower, but they will be set to the property value rather than the income from leasing or renting the property. The rate, currently set to 12.5% of rental revenue will be capped at 0.1% of the property value, and will be determined by local government administrators. Furthermore, a two to three year grace period will be instituted to phase in new taxes.

Bill Seeks to Protect Criminal Suspects

The Law Society of Thailand began gathering signatures in September to support its proposed bill seeking to limit certain police powers provided by the Criminal Procedure Code. Under the current law, police investigators with a court order may detain an individual suspected of a crime for 84 days before taking them before prosecutors. The law society has opined that this lengthy detention period and detainees inability to become informed of the charges against them until they appear in court are violations of individuals' human rights. In response, they are drafting a bill that would hasten the process and will name the bill after Somchai Neelahphaijit, the Muslim lawyer who was abducted by police earlier this year.

Investor Protection Fund Established by SET

In July, the Stock Exchange of Thailand (SET) approved the creation of the Investor Protection Fund (IPF) to protect the assets of individual investors in the event their brokerage house is unable to do so. The SET will deposit an initial 300 million baht in the fund as start up capital and brokerage houses will be required to make monthly deposits in proportion to the value of stock they trade in that month. Brokers that join the IPF before Jan 1, 2005 will be exempt from the entry fee that will begin next calendar year and increase every six months following that date. The purpose of the IPF is to maintain investor confidence and develop the infrastructure of the market. However, particular details, such as the policies for coverage and the structure of the IPF have not been finalized. In a related development, the SET has also established the Federation of Capital Market Associations, an organization of interested individuals such as investor associations, listed companies, brokerages, and security analysts.

Thailand - India Free Trade Agreement Increases Investment Opportunities

The Board of Investment (BoI) and the Confederation of Indian Industry agreed upon a plan to facilitate business opportunities in each other's countries through the new free trade area (FTA) agreement that was signed last year. The memorandum of understanding (MoU) is designed to provide trade and investment information to potential investors in both countries. BoI representatives suggest that Thai investors could capitalize on India's cheap labor, particularly involving automotive components, information technology, software, and food processing. Indian investors look to invest in chemicals, plastics, paper, and garment services. The BoI also suggested that IT is a promising area of investment for both sides as each have different strengths in the sector. Currently investment between the two countries is relatively low, amounting to less than 1 billion US dollars in either direction. However, the FTA, which went into effect September 1, 2004 for certain products, is expected to increase investment between the two nations. The agreement will cut import duties from each country 50% in the first year, another 25% the following year, and eliminate them altogether by 2006.

Board of Investment (BoI) ends Export Tax Privileges

BoI promoted businesses that export more than 80% of their production will no longer be automatically granted tax holidays. The BoI, citing concerns about a potential export subsidy problem, had stopped granting this tax benefit to new business in 2000. This August they announced that they would end them altogether. In fact, the World Trade Organization Agreement on Subsidy and Countervailing Measures had ordered a halt to such practices in 2002. The WTO then allowed Thailand, as a developing country, to continue providing such incentives until January 1, 2005. 581 BoI promoted companies will lose such tax incentives. However, the BoI continues to provide exemptions for equipment and machinery imported to Thailand for industrial purposes. Furthermore, new incentives have been created to promote wafer fabrication and integrated circuit and hard disk manufacturing, and to strengthen the local film industry. The wafer fabrication industry will receive the greatest tax benefits, as it a target export industry. The film industry may receive tax breaks on imported film equipment. Automotive assemblers will be the final industry to lose their protection in an effort to protect that industry from passing on their tax burden to other sectors of the automotive industry in Thailand.

New Coverage Plan for Bank Deposits

A bill has been proposed to replace the blanket guarantee on bank deposits that was established in the wake of the 1987 financial crisis. In June 2004, the Bank of Thailand suggested that the time was right for the new, limited coverage Deposit Insurance Agency. The reduction in non-performing loans and the strength of the economy were reasons cited for the appropriateness of the change in bank deposit insurance. The central bank expects the number of non performing loans (NPLs) to fall from its peak of nearly 12% of all loans to only 4% by 2006. A Bank of Thailand representative supports that assertion, as the state-owned Asset Management Corp will begin buying bad loans out of the system soon. If approved, the DIA would replace the Financial Institutions Development fund that was created to bail out banks and other financial institutions in the years following the 1987 financial crisis. Under the new agency coverage will be limited to 1 million baht per account. Parliament was scheduled to receive the draft law in August.