Yesterday, we spoke with an
official of the Fiscal Policy Office (FPO) about the proposed tax
incentives for listed companies and investors. We were heartened
to hear that the Thaksin government is fast-tracking this issue
and that it can be implemented within the next few months.
The FPO has already passed a
resolution to lower the tax rates for existing listed companies,
new listed companies and companies listing on the Market for
Alternative Investment (MAI).
|
Changes
to the corporate income tax code |
|
|
|
Old
Rate |
New
Rate |
|
|
|
|
|
Existing
companies listed on SET |
30% |
25%
on the first Bt300mn |
|
|
|
earnings
and 30% thereafter |
|
|
|
|
|
New
listed companies on the SET |
30% |
25% |
|
|
|
|
|
Companies
listing on the MAI |
30% |
20% |
According to the FPO official, the
tax code can be changed through a royal decree. As PM Thaksin
Shinawatra has given this issue high priority, the amendment can
be passed within a couple of months.
The official said that the new
corporate tax rates will be effective for only five years.
Afterwards, corporate taxes will revert back to the old rate.
The FPO is also working on an
amendment to the personal income tax structure to encourage
investment. The official said that the agency is currently in the
process of drafting the terms, which should be completed by the
end of this month.
Currently, the FPO is considering a
maximum Bt100,000 deduction on gross income for investments in the
stock market. The minimum would be Bt10,000. Investors can claim
the deduction after holding the investment for five years.
Although we think the government is
taking a step in the right direction in encouraging wider share
ownership, we don’t believe the typical Thai investor will make
an investment decision based on a tax deduction five years in the
future.
However, we are much more positive
on the reduction in corporate income tax rates. Hopefully, it will
encourage companies with promising futures to seek listing on the
SET or MAI.
We suspect that larger companies,
which currently pay the full tax rate and already use good
governance practices, would be the most interested in listing.
Last month, TAC’s management told us that a lower tax rate would
be an important consideration in listing in the Thai market. Also,
if Tractebel delists Cogeneration Co. (COCO), it is more likely to
relist its reorganized energy holdings either later this year or
next year.
We also believe that the lower tax
rate will prove to be an attractive incentive for some companies
previously planning listings, such as Bangkok Broadcasting (the
operator of TV channel 7 and chief rival of BEC) and 7-Eleven.
Even though the market conditions are not ideal, in both of these
cases they should fetch decent IPO prices given the trading levels
of comparables already listed in the market.
Almost all listed companies will
benefit from lower corporate tax rates. However, the manufacturing
sector would be the least beneficiary, as most industrial
companies already enjoy BOI sponsored tax holidays.
We believe the biggest
beneficiaries would be consumer-related companies. A lower tax
rate would improve the sector’s competitiveness against larger,
foreign-owned, non-listed consumer groups and retailers. A few
companies spring to mind, including BigC, Makro, MFG, ICC, SPC and
BJC.
