Kittiratt to look at tax exemption for overseas profits, investments.

Finance Minister Kittiratt Na-Ranong has promised to look into tax impediments to investing more overseas, while companies are calling for a tax exemption on profits generated by offshore businesses and a tax deduction for investment abroad.

"The Revenue Department is working hard on taxation to support Thai outward foreign direct investment [OFDI]," Kittiratt said yesterday.

He was speaking at the FPO 2012 symposium on "Thai Outbound Investment: Opportunities or Risks?" while researchers at the Fiscal Policy Office presented their findings on potential industries, attractive investment destinations and barriers thrown up by Thailand’s tax system.

Pimpathchara Kusolvitikul, a researcher, said that in a survey of listed firms, investors had called for a tax exemption on profits from overseas investment. The Revenue Department now collects 23 per cent in corporate income tax on such profits even though firms are also taxed by host countries.

They asked for a tax deduction for their investment abroad. Singapore and Malaysia already do this. Singapore allows firms to deduct double the investment abroad. Better tax incentives may have encouraged firms in those countries to move aggressively in OFDI.

Nattapol Supadulya, a member of the research team, said they found five industries that are expected to be able to expand abroad – agriculture, rubber product, electric home appliance, auto, and food and beverage.

The most attractive destinations for Thai investors are India, Vietnam, the Philippines, Turkey, Malaysia, China, Indonesia, Poland and Hungary.

Norapat Asvapanlop warned that Thai firms might be at a disadvantage if the government does not give them tax incentives.

For example, Thailand-based firms will get return of Bt1 due to higher tax than Singaporean firms, while Singapore-based firms will get return of 1.39 from the same overseas investment due to lower tax rates, he said.

Thai OFDI from 2006-10 was worth US$18.03 billion (Bt560 billion), or only one-third of Malaysia’s OFDI and one-fifth of Singapore’s.

"To get around the higher tax rate in Thailand, Thai firms usually set up their firms in lower-tax-rate countries like Singapore [using it as a springboard for investment in other countries]. Over the past year, Thai investment in low base tax countries without natural resources reached about Bt100 billion," he said.

"If we do not reform our tax system, Thailand will lose its production base competitiveness or Thai firms will be at a disadvantage" he said.

Researchers also urged the government to sign double-taxation and investment treaties with high potential investment destinations such as Mexico.

Chodechai Suwanaporn, executive vice president of energy economics and policy at PTT, said Thai investors should be aware of political risks. For example, PTT has invested in a gas pipeline in Egypt and is still suffering losses due mainly to business disruption by political violence.

Luxmon Attapich, a senior country economist at the Asian Development Bank, said the bank is consulting the Export-Import Bank of Thailand about jointly launching political risk guarantees for Thai investors. Currently, investors can also ask for political risk insurance from the ADB, she said.