Govt tackles the big sector items, but the poor are still waiting
After almost four years in power, the military government may have been successful in some macroeconomic areas and structural changes. In terms of the household economy, however, it still faces the uphill task of easing the plight of the grassroots.
While growth reached 4% in the first quarter, many people, particularly in households and the grassroots economy, have yet to notice much improvement. The government is prepared to inject 100 billion baht into the grassroots
economy via its Thai Niyom Yangyuen scheme in the second half of this year, in the hope things turn around.
In the meantime, it has made progress in several economic fundamentals.
TAX REFORM
After the military coup on May 22, 2014, the Prayut Chan-o-cha government put tax reform at the top of its agenda, with the aim of narrowing income disparities, boosting competitiveness and raising revenue as it grappled with the need to fund mega-infrastructure projects.
Raising tax revenue contributions based on asset value was the main target when balancing income, as 97-98% of tax revenue is generated by income and consumption taxes, particularly value-added tax (VAT). However, the government’s effort to impose taxes on assets has made slow progress, with only the inheritance and gift taxes being enforced.
Moreover, the levies have been watered down, so the taxes have not generated substantial income for the government and have been regarded as mere token gestures towards lowering income disparity. Other taxes including the land and buildings tax, land windfall tax and e-business tax remain in the pipeline. The Finance Ministry, which is in charge of tax reform, is still pushing for their implementation before the transition to a civilian government, hopefully next year.
The much-awaited land and buildings tax will soon be deliberated by the National Legislative Assembly (NLA) at its second reading, but the Finance Ministry, in exchange for its passage by lawmakers, must succumb to demands by the standing committee on the bill, to water down almost all the proposed property tax rates.
The NLA committee has suggested cutting the proposed land and buildings tax ceiling rates by 40% in many instances. The NLA’s proposal calls for a ceiling rate for homes of 0.3%, down from 0.5%; an agricultural use rate of 0.15%, down from 0.2%; and other use and undeveloped land to be taxed at 1.2%, down from 2%.
The legislators’ version also suggests trimming the exemption ceiling for first homes and farmland to 20 million baht from 50 million as proposed by the Finance Ministry.
The committee’s proposal requires owners of first homes appraised at 20-50 million baht to pay a property tax rate of 0.02%, or 200 baht for every million baht that exceeds the exemption threshold, and 0.03% for houses valued at 50-75 million baht, 0.05% for those valued at 75-100 million baht, and 0.1% for houses appraised at more than 100 million baht.
Second-home owners will be taxed 0.02% on property with an appraisal value of up to 50 million baht, 0.03% for houses worth 50-75 million baht, 0.05% for homes valued at 75-100 million baht and 0.1% for more than 100 million baht.
The revised tax rates are expected to almost halve income to 39 billion baht a year from the 64 billion forecast to be fetched under the Finance Ministry’s version.
A bill on the proposed land windfall tax, a levy on inflated property prices from big-ticket transportation infrastructure, is now under consideration by the Fiscal Policy Office. The bill caps the ceiling at 5% of the inflated price, but the applicable rate will be decided later.
Those liable for the tax must own land within a radius of five kilometres of a station serving high-speed, double-track or electric trains, or from the on- or off-ramp of an expressway. Those who own plots within 5km of building-restricted zones such as airports or ports will also be required to pay the tax.
An e-business tax, a levy on online purchases, advertisements and website rent in Thailand earned by operators with a presence outside the country, has passed the public hearing process and the Revenue Department is expected to propose the bill to the Finance Ministry in the months ahead before forwarding it to the cabinet.
The bill for the e-business tax has set a ceiling rate of 15%, but the applicable rates will vary depending on the nature of the business. If the bill is enforced, online vendors with an overseas presence but with domestic transactions are required to withhold tax and remit it to the Revenue Department. They will also be required to sign up for the VAT system if they earn an income of more than 1.8 million baht from selling products and services.
The draft on e-business tax will also annul the Revenue Department’s VAT exemption for online shopping on goods worth less than 1,500 baht that are bought from foreign vendors outside Thailand and shipped by mail to prevent vendors from exploiting the loophole by breaking up invoices into amounts below the threshold to skirt the levy. The move is intended to pave the way for taxing all online purchase transactions. Wichit Chantanusornsiri
INFRASTRUCTURE PROJECTS
Infrastructure development made substantial progress in this government. It has come up with various projects ranging from motorways, double-track railways and high-speed trains to airport expansions.
The 2016 transport infrastructure action plan calls for 20 priority projects with a total investment value of 1.38 trillion baht, while the 2017 plan includes investment in 36 infrastructure projects worth 895.75 billion baht. In fiscal 2018, the plan targets investment worth 103 billion baht to finance ongoing projects, mainly light rail schemes in key cities, including Phuket, Chiang Mai, Nakhon Ratchasima, Khon Kaen, Phitsanulok and Udon Thani.
In addition, an intercity motorway linking Bangkok to Mahachai in Samut Sakhon province will be developed, and airports in Khon Kaen and Krabi upgraded.
According to Porametee Vimolsiri, secretarygeneral to the National Economic and Social Development Board (NESDB), 19 projects with a total of 733.17 billion baht were under construction as of February. Significant projects under construction include the Yellow Line (Lat PhraoSamrong), the Orange Line running from the Thailand Cultural Centre to Min Buri and ThaiSino Bangkok-Nakhon Ratchasima high-speed train project.
According to Mr Porametee, the government will choose the bidders for three infrastructure projects in the EEC economic zone including the high-speed train project linking the three main airports of Don Mueang, Suvarnabhumi and U-Tapao airport this year.
Transport Minister Arkhom Termpittayapaisith said the ministry will propose for cabinet’s approval in June the first stage of the 276-billionbaht Thai-Japan high-speed rail project linking Bangkok and Phitsanulok. The design process for the high-speed train project is expected to take about one year, with work likely to start in 2020.
Deputy Prime Minister Somkid Jatusripitak, who oversees economic affairs, said the government is keen to accelerate opening bids for planned infrastructure projects this year to make sure work on the the projects can start next year.
According to Mr Somkid, bidding for highspeed rail projects in main cities such as Phuket, Khon Kaen and Chiang Mai should also open this year to solve traffic problems and create new economic areas which can generate income for these places. Chatrudee Theparat
TELECOMS INDUSTRY
The military regime issued two important orders for the auction of frequency spectrum after two mobile telephone concessions awarded earlier expired.
True Move and Digital Phone Corporation (DPC), a subsidiary of Advanced Info Service (AIS), had operated the 2G service on the 1800MHz spectrum under CAT Telecom concessions; the True concession expired in 2013. The order involved the auction of 1800 and 900 megahertz spectrum which had a total reserve price of 49 billion baht, divided into four licences.
For the 900MHz spectrum, AIS previously operated its service on 900-MHz under a TOT
concession. The concession expired in September 2015. The auction win of two licences of 1800-MHz spectrum went to True Move with the price of 39.7 billion baht and AIS with a price of 40.9 billion baht.
Meanwhile, the two licences for 900-MHz spectrum went to JAS Mobile Broadband (JASMBB) at a cost of 75.65 billion baht, 486% higher than the reserve price, and True Move for 76.29 billion baht, 491% higher than the reserve price. The high winning prices were driven by demand by major operators to gain an advantage over their rivals, especially in the 4G era.
Unfortunately, JASMBB later defaulted on the first payment of its licence. The default prompted the government to invoke a section 44 order in April 2016 for a reauction and AIS finally won the JASMBB’s licence as it was the only bidder in the reauction.
Komsan Tortermvasana
AVIATION SAFETY
The decision by aviation authorities to lift the red flag they had imposed on the Thai aviation sector, after the government addressed safety concerns they had raised, was a big step forward for the industry, but took two years of work.
Prime Minister Prayut Chan-o-cha invoked his special power under section 44 to fix aviation safety problems and overhaul the sector after the International Civil Aviation Organisation (ICAO) imposed a red flag warning in 2015. In October last year, the ICAO finally lifted the flag, which meant airlines registered in Thailand were able to operate and expand their services in and out of the country.
Suchat Sritama
ENERGY REFORM
The military government floated the price of liquefied petroleum gas (LPG) and partially floated the price of compressed natural gas soon after taking office.
The government also revoked the capping of diesel prices at less than 30 baht per litre that was implemented in recent several years to ease the subsidy burden of the State Oil Fund. The timing was fortunate, as the global oil price later fell below US$50 (1,600 baht) a barrel and stood at low levels until recently.
Early in 2015, the “Thailand Integrated Energy Blueprint” (TIEB) was drafted to implement energy management for the next two decades. Moves to open the sector to private investors and ease the monopoly in several segments are also proceeding. One recent move concerns granting investors access to the liquefied natural gas (LNG) import business, replacing the monopoly by the national oil and gas conglomerate PTT Plc.
At the time, renewable energy was growing rapidly across the world with firms exploiting opportunities in everything from solar panels to wind farms. The popularity of renewable energy among Thai investors was warmly welcomed when policymakers granted a large number of licences to develop and operate it. The outcome was a tripling in the capacity of renewable energy to 9,000 megawatts.
Policy-makers also hope to diversify from the fossil-fuel energy generation and lower the cost of importing coal by developing two coal-fired power plants in the South.
The government recently dusted off plans for the plants, though they are meeting resistance from locals.
Yuthana Praiwan