Doing business in Thailand / Export
Thailand is becoming increasingly involved with the international economy. The overall trade to GDP ratio has increased from 34 percent in 1970 to over 60 percent in 1989 and the export sector has increasingly become the engine of growth for the Thai economy.
In this process, the role of the manufacturing sector has been dominant, with the manufacturing share of total exports more than doubling in less than a decade - from just over 30 percent in 1980 to almost 70 percent in 1989. With the exception of the 1982/83 period when the international economy slumped, Thailand has experienced annual export growth rates in the double figures.
A look at Thailand’s present export structure indicates a diversity in terms of both products and markets considerably greater than in the case of most of her competitors. In terms of products, the top twenty items include a growing number of industrial products and new entrants are seen every year as the economy adjusts its production structure to take advantage of new opportunities.
In terms of markets, Japan and the United States continue to account for a large proportion of Thai exports but new markets such as Singapore, Hong Kong, Malaysia, Saudi Arabia and China are beginning to play a more important role.
Following an export growth of 34 percent in 1988, exports in 1989 grew by around 26 percent. This growth was fuelled by manufactured goods exports which continued to make inroads into developed country markets. The increasing number of export oriented firms promoted by the Board of Investment contributed significantly to the surge of exports and is likely to lead to a strong export performance in the 1990’s.
The traditional exports of Thailand are rice, sugar and rubber but she is also the world’s leading exporter of canned pineapple and tuna.
On the other hand, the major imports of Thailand are capital goods like electrical and non-electrical machineries, intermediate goods and raw materials such as raw gems, fabrics, yarns, iron and steel, fish, meat, vegetables and chemicals.
Export Promotion Policies
The Thai government has strongly supported export activities since the early 1970’s as a way of generating foreign exchange and avoiding imbalances in the balance of trade. A number of government agencies are involved in export promotion.
The Board of Investment (BOI) offers a range of particularly generous incentives for export-oriented investors in Thailand. These include exemption from import duties and business taxes on imported raw materials, components and re-export items, as well as from business taxes and export duties for exported goods.
The BOI also provides a streamlined procedure to enable promoted exporters to make use of the tax exemptions on imported inputs to be used in exports. This scheme involves an "input stock accounting book method" which prevents the firm from having to pay duty up front or to put up a bank guarantee.
Access to this tax exemption process is usually granted to promoted firms for one year, but it can be for five years if they locate in the Special Investment Promotion Zone (the above defined Zone 3). Subsequently, the firm can apply for the Customs Department’s tax refund scheme.
The Ministry of Finance operates three main schemes to help exporters. Firms can claim tax drawbacks from the Customs Department (CD) and/or tax rebates from the Fiscal Policy Office (FPO) for their export activities.
Taxes that can be drawn back under the CD’s tax drawback scheme include: customs duties, business taxes, municipal taxes and excise taxes. Producers can either pay the full amount of duties and taxes and subsequently be refunded by a check issued by the Bank of Thailand, or use a bank guarantee at the time of importation. The tax drawback process generally takes less than three months but before exporting the finished products, producers must submit a processing formula to the CD.
Under the Fiscal Policy Office’s rebate scheme producers can obtain rebates on many taxes on inputs used in exported products. The rebates are made on the basis of standardized formulae which differ from product to product. Tax rebates must be applied for within one year of exporting; they are paid as tax credit certificates which are valid for three years. The tax rebate process is simpler than the CD’s tax drawback system, and producers can normally receive tax rebates within one month.
Lastly, the Revenue Department has a scheme that enables manufacturers of export products registered with the Department to buy domestic intermediate inputs with a business tax rate of only 0.1 percent, as opposed to the normal one of 5 percent.
Bonded Warehouse Facilities
The Customs Department allows firms exclusively manufacturing for export to set up bonded warehouses and import duty-free inputs for their export products. Producers who receive approval have to submit guarantees amounting to about 50 percent of the duties and taxes that would otherwise be payable, and they have to pay a stipulated annual fee.
Export Processing Zones
Firms located in an Export Processing Zone (EPZ) are exempt from import duties and business taxes on factory construction materials, machinery, equipment, inputs needed for the manufacture of exports, as well as from export duties and business taxes on exports. Customs officials are stationed at the EPZ to monitor the imported raw materials and exported finished goods, but firms in EPZ’s do not have to put up any form of guarantee.
Within the EPZ’s, foreign investors are permitted to own land, to bring in foreign technicians and experts to work in the factories and to remit foreign exchange abroad. EPZ’s have full infrastructure facilities and are generally well situated with regard to ports and airports.
At present, there are four EPZ’s, established by the Industrial Estate Authority of Thailand (IEAT), the Laem Chabang Industrial Estate, the Lad Krabang Industrial Estate, the Bang Poo Industrial Estate and the Northern Industrial Estate near Chiang Mai. In addition, a number of new export processing zones are being planned or are already in the construction phase in several parts of the country; they are mostly financed by the private sector.
Financial Support for Exporters
The Bank of Thailand (BOT) provides credit to exporters through a concessionary rediscount facility with maturity periods of up to 180 days. This facility is operated through the commercial banks and the amount of rediscounted finance granted depends on the supporting documents provided by the exporters - 60 percent of warehouse receipts; 70 percent of signed contracts or orders; 80 percent against letters of credit; and 90 percent against bills of exchange.
The Industrial Finance Corporation of Thailand (IFCT), a quasi government industrial development bank, can provide equity and loans for the establishment or expansion of industrial enterprises, and export projects are among those eligible for IFCT support.
The IFCT also runs an Export Industry Modernization Program with financial assistance from the Japanese government. This provides financial and marketing assistance to small and medium scale exporters in certain sectors.
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