Investors keenly await new BOI strategy

The new strategy brings a lot of attention to both current BOI-promoted companies and new foreign investors who look for business expansion or relocate existing business premises in Thailand. The question that arises in the minds of many advisers, including us, is how this new strategy will affect their current and future businesses. 

The BOI has set up several meetings and public hearings to explain and clarify about the new strategy. The given rationale behind adopting the new strategy, to name a few, are to prepare for increasing competition in attracting new investment after the Asean Economic Community comes into effect in 2015; the result of increase in new businesses globally, eg business for the elderly and healthcare, business supporting urbanisation, energy con?servation and alternative energy business; and to try to escape the ‘middle-income trap’.

Now, let’s take a closer look at six directions of the new strategy and their effect.

Firstly, the BOI will be more focused on and prioritising activities depending on the importance of each activity instead of providing board-based investment promotion.

The 10 industries the BOI will focus on are, for example: basic infrastructure and logistics; basic industry (eg, steel, petrochemicals, machinery); medical devices and scientific equipment; alter?native energy and environmental services; services that support the industrial sector (eg, research and development, human resources development, engineering design, software, regional operating headquarters, trade and investment support office); advanced core technologies (eg, biotechnology, nanotechnology, advanced material technology). 

The BOI will still have a list of seven main promoted business sections, but some activities will be cut off it. For instance, deep sea fishery, and manufacture of ceramic products, manufacture of garments, manufacture of electric-powered vehicles, e-commerce business, manufacture of pesticides and herbicides products, long-stay business, hospitals.

Secondly, the BOI will initiate merit-based instead of sector-based incentives by providing additional incentives based on each project’s merit to encourage competitiveness enhancement activities such as R&D, environmental protection, etc, while tax incentives for some activities will be reduced.

Next, the current zone-based incentive will be changed to regional clusters-based incentive by promoting new industrial clusters in each region or selected border areas to create new investment concentration. A challenge for the BOI is how to specify what area should have new industrial clusters, as pressure could come from all stakeholders that want their areas to be promoted industrial clusters. The initial list of the type of industrial clusters considered by the BOI are: food processing; halal-food processing; rubber; fashion; aerospace; and science and technology. 

This change will likely provide less motivation for investors to invest in some provinces that do not have well-developed infrastructure or in remote areas. It will be a challenge for the BOI on how to attract investors into less-developed areas or provinces, if not located in one of the regional clusters. Given that the government budget will be heavily spent in many mega-projects in the years to come, the question is how the government will utilise its budget to improve infrastructure in less-developed provinces or areas to attract investors so there is no economic and social disparity.

In addition, the BOI will play a greater role in providing facilitation-oriented promotion instead of only tax incentives-oriented promotion. One of the promotions is that the BOI will create a one-stop service that integrates support from various government agencies as a package.

Further, outbound investment will be promoted by the BOI in addition to inbound investment. 

This is to encourage Thai companies to invest abroad so that they are able to enhance industrial competitiveness by maintaining market bases or expand the global market of Thai products; to overcome domestic resource limits by seeking raw materials that Thailand does not have; and to seek new business opportunities by expanding markets for domestic services or products. Initially, the countries targeted by the BOI are in Asean, South Asia, the Middle East, and Africa.

Lastly, the BOI will evaluate the success of investment promotion by project outcome instead of the value of project applications by setting clear key performance indicators to measure benefits and cost-effectiveness of investment promotion.

Once the new strategy consisting of the above directions is officially announced by the BOI tentatively within this year, investors should have a precise idea on how to formulate their own investment strategy. 

 

Poljun Divari is a director, tax and legal services, at Deloitte Thailand. For further queries, please contact him at 02-6765700.