Thailand’s steps towards global competitiveness
Opinion 7 minute read

Thailand’s steps towards global competitiveness

20 December 2018

With Thailand’s elections planned for Q1 2019, a new chapter is around the corner. Let’s take a step back and look at some of the positive changes made to the country’s business regulatory landscape in recent years.

Thailand’s economy has seen some ups and downs since the Asian Financial crisis, and some may argue regime changes have played a part too. While transitioning from a military regime to a democracy is not new to Thai citizens, it nevertheless marks a milestone that will see new policies and initiatives established. For this reason, I want to take a retrospective look at what’s been done so far, and how it will impact the country moving forward.

For more than 15 years, the Ease of Doing Business Thailand project has aimed to encourage the country’s economy to compete on the global stage, underpinned by more efficient regulation. Notably in the same year (2002) that the project began, the very first piece of legislation recognising e-signatures, the Electronic Transactions Act, came into effect. 

The Regulatory Guillotine project was also enacted – much later in 2017 – with the same intention of improving Thailand’s international standing. This deregulation program has since axed the red tape of more than 100,000 regulations, royal acts, executive decrees and orders - many of which were out-dated and had become plain obstacles to doing business. The project rollout was set in three phases with the first immediately focused on facilitating foreign inbound investment, and boosting the country’s World Bank ‘Ease of Doing Business’ ranking. In fact, Thailand has soared from 46th to 27th position in the ranking over the past few years, amongst 190 jurisdictions.

I believe this effort to increase the country’s index position is a reflection of a deeper, underlying resolve of Thai citizens to eliminate redundancies in their daily dealings with administration, better promote private sector activity, the country’s economic development, and reduce the business operational burden.

A win over red tape

Back in 2016, the Bangkok Mass Transport Authority (BMTA) was looking forward to receiving 489 NGV brand, eco-friendly city buses from the Malaysian ‘Bestlin Group’ to replace outdated diesel buses serving public lines in Bangkok. On delivery, the Customs Department impounded all buses and challenged the validity of tendering process. The Department alleged the bidder evaded import taxes by misrepresenting the manufacturing location, which was in fact China. Two years later, on 10 April 2018, the Administrative court ruled in favour of the bidder, stating the source of assembly was not an essential condition, hence granting the bidder 1.1 billion baht compensation out of taxpayers’ pockets. Red tape had backfired. As a result, in May 2018 after another six rounds of unsuccessful bids, the BMTA finally placed an order to buy the first batch of air-conditioned NGV buses, also imported from China, at a 5% price premium, to phase-out the old diesel fleet.

More efficient government processes, clarity on business procedures, online tendering and a push towards e-filing portals are all measures that pave the way for larger infrastructure development projects. The Eastern Economic Special development Zone and the Thailand 4.0 innovation framework are key examples.

These efforts even took an interesting spin when the military government passed some of the Ease of Doing Business Framework reforms by issuing a direct order under section 44 of the Interim Constitution. It grants the regime absolute power to give any order necessary to "strengthen public unity and harmony". Some would argue that definitely is an effective approach to eliminate red tape.

Key initiatives

Here is a summary of just some of what I believe are Thailand’s most impactful red-tape-cutting initiatives so far. I have focused on commercial legal matters, reflecting my day-to-day work helping foreign companies looking to establish a presence in the Kingdom. If you’re looking to do the same, don’t hesitate to get in touch with TMF Thailand.

- 21 July 2015 - Licensing Facilitation Act: This was implemented one year after the military took over, forcing each administration to produce a clear list of the documents they require to deliver a given license and make it available to the public. This measure was a giant leap forward. It enhanced transparency and accountability over government procedures.

- 23 September 2016 - Notification to the Registration of Limited Partnerships and Companies: issued by the Department of Business Development to upgrade their documentation in preparation for the ‘Smart DBD’ e-filings and e-portals implementation under the Smart MOC 4.0 initiative. Every company registration document complies with a ‘QR Code Standard’ to facilitate traceability and authentication.

- 4 April 2017 - Executive order issued via section 44 of the interim constitution: this facilitated procedures for company e-registration, e-filings of financial statements, waiving statutory requirements for companies to register a company seal, rebalance the rules and quotas for shareholder meetings, facilitate bankruptcy procedures and so on. 

In my view, the most impactful change made was to the Public Companies Act whistleblowing section, which allows just 5% of shareholders to call for an inspector to examine the financial affairs and status of the company, as well as its board of directors.

- 17 March 2017 - Decree enacted under the Revenue Code: to encourage the private sector hire of elderly persons. Bearing in mind the issue of Thailand’s aging population, companies hiring Thai citizens aged over 60 can now deduct their wages as company expenses, with some limits on the salary amount and a quota per company. You can read about employer obligations to retiring employees in this article.

- 9 June 2017 - Amendment to Ministerial Regulation removes some restrictions applicable to Representative Offices and Regional Office entities under list 3.21 of the Foreign Business Act. With these two entities now exempt from the licensing requirement, the registration process can be completed in just a few working days.

- 31 October 2017 – Revenue Code Decree: provides clarification and additional incentives to small and medium enterprises (SMEs). With a profit tax exemption of up to 300,000 Baht, SMEs now also benefit from progressive tax brackets of 15% and 20% for 3M+ profit. This is actually the 3rd Royal Decree granting benefits to SMEs although this decree notably allows SMEs a 200% tax deduction on their approved IT expenditures to align with the Thailand 4.0 framework.

- 13 November 2017 - New Customs Act: allowing for advance ruling on tariff rates towards a ‘one-day-clearance’ approval with no more onsite negotiations with officers. The measure also came with an intelligence centre helpdesk available to the public for Import, e-Export, e-Manifest, e-Payment, and e-Warehouse, providing more clarity on import/export procedures.

- 27 March 2018 - Amendment to the Emergency Royal Decree on Managing the Work of Aliens: enacted to provide some (much needed) clarification on the activities that business visitors can engage in without a work permit. These include attending a meeting, seminar, work inspection and it also waives prison sentences for first offenders and decreases fines.

- 18 April 2018 - Ministerial Regulation applied by the Department of Business Development under the Smart MOC 4.0 initiative: to reduce fees on corporate incorporation, with a 30% discount when using their e-Registration online portal.

- 15 August 2018 - E-certificate service launched by the Department of Business Development: to facilitate business procedures underpinned by the Smart MOC 4.0 initiative. Procedures include proving the legitimacy of the signatory directors for opening a corporate bank account, bidding on projects or simply attaching the company certificate to a contract. Users can now download an e-certificate authenticated by an individual QR code.

Improvements made, but there’s more to be done

Clearly a lot of positive progress has been made in ongoing efforts to modernise Thai government infrastructure and achieve more transparency, efficiency, and accountability. 

One of the barriers still encountered by inbound entrepreneurs and corporates is the lack of coordination between different government departments. While we note improvements year-on-year, some ministries still lack the infrastructure to effectively communicate with each other and streamline practices. For example, license applicants still need to complete tedious applications to collect documents from ministries, only to drop them off at the government department next door. Similarly, in terms of corporate structuring, there are multiple programmes, licenses, and incentives available to investors under different ministries - and no government body taking ownership to synchronise them. Legal outsourcing firms and Embassy commercial desks often find themselves filling this gap by liaising with different ministries to clarify best practices, regulations, and facilitate foreign direct investment. 

Looking forward to 2019, I believe we will see striking changes take place once the Big Data government project, led by Minister of Digital Economy and Society Dr. Pichet Durongkaveroj, is implemented. Initially sprouted as an MOU between nine ministers, now all 20 ministers have agreed to participate and provide data to a central set of servers. They’re aiming to collect data sets, identify data sets, and define focal points of usage for public benefit. 

The first applications will see optimization of agricultural, healthcare practices and the implementation of digital citizen IDs or digital driving licenses. However, I foresee this infrastructure collating citizens’ data potentially underpinning some more controversial reforms; a points-based driving license system, or helping to expand the taxable base by scrutinizing connected bank accounts with an excess of 2 Million Baht worth of transaction per year.

Thailand’s moves up the World Bank ease of business ranking report year-on-year is a clear message to foreign stakeholders that the Kingdom is ready for investments and infrastructure development at a larger scale.

Need more information or want to discuss what you’ve read here? Contact us today.

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Written by

Thomas Jean Lekhal

Associate Director, Global Business Development

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