6 Issue 3
- December 2004
SGA Bulletin is intended for informational purposes
only. It does not constitute legal advice. Legal, business
and other information is subject to change and no warranty
is either expressed or implied.
more information please contact:
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and Australia prepare for Free Trade Agreement to Commence
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.
in Land Tax to be Gradually Implemented
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
Seeks to Protect Criminal Suspects
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.
Protection Fund Established by SET
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.
- India Free Trade Agreement Increases Investment Opportunities
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.
of Investment (BoI) ends Export Tax Privileges
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.
Coverage Plan for Bank Deposits
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