Bangkok, the 12th of October 2010: Integral to the Finance Ministry’s proposal is the revoking of the 15% tax waiver on capital gains for foreign investors into Thailand’s domestic bonds market. The reimposition of the tax will henceforth come into effect from the 13th of October with no retroactive effect.
Earlier applied to foreigner investors, the waiver was aimed at attracting foreign inflows into the government bonds market. However, an increase of some 6% in foreign inflows over the past 9-months alone has prompted the Finance Ministry to reinstate the tax in an attempt to curb investment to more sustainable levels.
Inclusive in the reinstatement of a capital gains tax on inflowing investment, the ministry will also look at measure to expedite and promote an outflow of investment in foreign currencies by the government and state enterprises during the fourth quarter.
Under the terms of the proposal, the government plan to promote a Bt50 billion investment by state enterprises in purchasing machinery, tools and raw materials in the fourth quarter, while supporting the private sector with upgrades and improvements in technology.
Integral to these plans will be a discussion between Thailand’s Finance and Industry ministers on relating tax barriers and possible concessions to increase and attract private sector investment. Minister Chatikavanij explained that possible stimulus measures would later be proposed to the Thai Cabinet once the issue had been discuss between involved ministries.
In addition, the Thai Cabinet also approved measures to help reduce the baht’s appreciation on Thai exporters. Fundamental to the decision was the acceptance of measures to aid small-medium sized state enterprises (SMEs) by supporting forward contracts.
Under the agreement, a one-year project, the Export-Import Bank of Thailand (EXIM), the Small & Medium Enterprise Development Bank of Thailand, Islamic Bank of Thailand and the Krung Thai Bank will help make forward contracts for small-scale exporters with a cap of Bt15 million export value per exporter.
Mr. Chatikavanij explained that his new policy would help ease the current appreciation of the Thai baht, while reducing foreign exchange risks for over 17,000 small to medium sized enterprises. The baht’s strengthening by more than 11% in 2010, second amongst Asia’s most traded currencies, has significantly affected Thailand’s otherwise strong export industry particularly it’s SMEs.
Federation of Thai Industries (FTI) Chairman Phayungsak Chartsutipol welcomed the Cabinet decision, saying it has sent a clear signal that the government has taken measures to curb the influx of capital inflows and address the appreciation of the baht.
Meanwhile, the Bank of Thailand (BoT) revealed that it had no plans to provide new measures to contain the stronger baht, believing that to do so would be a premature and unnecessary decision given the current economic climate, according to Siri Karncharoendee (member of the Monetary Policy Committee (MPC)).
Speaking after a special MPC meeting Tuesday, Mr. Karncharoendee said that the committee discussed the continued baht appreciation while announcing that it will monitor the progress of implementations made by the government in an attempt to curb the currency surge.
“The MPC must wait and see how effective previous state measures can rein in the continued baht rise. The panel believes that it is too early for the central bank to issue new measures to cope with the currency appreciation,” he said.