The investment climate is expected to improve further as Thailand’s Board of Investment (BOI) introduced “Seven-Year Investment Strategy” on January 1, 2015. The new policy initiative implements tax and non-tax incentives for Thai domestic and overseas investment. The main objectives of the initiative are to improve country’s competitiveness on the regional and global scale; to overcome “middle income trap” and; to achieve sustainable long-term growth.
On the main agenda is to promote manufacturing and high tech investment projects by facilitating the creation of industrial zones and clusters. This will be achieved mainly by lower corporate income tax and lower import duties for investment projects that qualify as being high value added. The tax and non-tax incentives vary by sector and region. The investment activities eligible for investment promotion include agriculture, basic metals, ceramics, minerals, light industry, metal products, machinery, transport equipment, public utilities, electronics, chemicals, service, paper and plastics.
Investment situation will also be favored by expected growth in aggregate demand. GDP growth forecast for 2015 is around 3.9% compared to last year’s 0.7% growth. Kritsada Jinavijarana, the director-general of the Fiscal Policy Office, stated – “the reason for the increase for 2015 will be due entirely to the proposed massive government spending in infrastructure projects and the ever improving tourism sector”. The Central bank is also expected to keep interest rates low which will further facilitate investment in the country.
There are also positive externalities on the regional level. As the process of creating a single economic market under the ASEAN Economic Community (AEC) is coming to completion, unified regional market will imply free flow of goods, services, labor and capital within the region. This process will further facilitate knowledge and “know how” spillovers and will create open environment for investment and trade.
In spite of the positive investment trends in the country as well as on the regional and global levels there is still some room for failures. More specifically, resource misallocations could be one of the negative consequences accompanying such drastic changes. For instance, targeting specific investment activities and industries may hurt others by changing relative incentives of investors. If the country has a comparative advantage in the activities which are not subject to investment promotion policies then lower investment incentives will lead to an inefficient level of usage of those advantages.
In addition, it may be the case that the time is not ripe for certain high-tech activities (due to lack of skilled workers, poor education system etc.) however, if investment incentives are increased for such activities then investment may end up in business which is not worth doing in the long run. All such issues need to be scrutinized and relevant decisions need to be made, taking into peculiarities of the country and current possibility frontiers.
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