Ragged pursuit of growth

Three years after staging a bloodless coup, the military government has managed to restart the stalled Thai economy.

The country's economic performance can best be described as a work in progress, when measured by GDP growth.

After Prime Minister Prayut Chan-o-cha took office, the country managed to record GDP growth of 2.9% in 2015, a big improvement from 0.7% in 2014 when the Yingluck administration was in power before being rocked by a political crisis that seriously jeopardised the economy.

GDP growth leaped to 3.2% last year and government projections point to a 3.3-3.8% increase this year.

But Thailand's exports, the key economic driver, largely receded as the government was less successful at reviving overseas shipments. Exports in 2015 plunged 5.79% year-on-year, compared with a decline of 0.43% in 2014.

Exports grew 0.45% last year, with official planners projecting a significant recovery of 3.6% growth this year.

Its promise of numerous major initiatives and implementation of stalled projects are the basis for the administration's economic optimism. The launch of a digital economy, the transformation to the Thailand 4.0 era through value-added goods and services, the creation of an Eastern Economic Corridor (EEC), and a multi-faceted tax overhaul are the government's main strategies.

Some projects such as massive infrastructure outlays on various rail networks are likely to be on track in the near future. However, other plans such as energy reform, construction of new coal-fired power plants, and starting the long-delayed petroleum licensing round may not be so lucky.

Perhaps the indisputable bright spot is the tourism industry, which has flourished the past three years thanks to political stability and serious efforts to promote the sector.

What follows is a comprehensive look at the key economic policies of the military government.

Digital Economy

The transition to a digital economy and digitisation of business has continued in fits and starts in the name of Thailand 4.0. More industries are embracing digitisation, which aims to create assessment tools that link and react to each other digitally.

National e-payment

The national e-payment initiative, a crucial infrastructure to facilitate a digital economy, has made significant progress in all four schemes: PromptPay, debit card usage expansion, e-tax, and e-payment of welfare and subsidies.

The goal is to move away from a cash-based society as e-payments are efficient and allow individuals, businesses and governments to transact with cheaper costs. The government can provide unbanked people better access to financial resources as well as fight fraud and underreporting of tax payments.

Even though PromptPay, a low-cost online money transfer service, had a delayed start because of a technical glitch, the number of registered users, transactions and value are all on the rise.

Transactions shot up to 100,000 a day in March from 15,000 per day on average during its first week. Money transfers made via PromptPay reached 4.3 million transactions as of March, worth nearly 30 million baht.

At the end of March, 27 million citizen IDs have been used to sign up for PromptPay while more than 6 million mobile phones have been tied to bank accounts for the service.

To boost the use of debit card payments, the government is on course to more than double the number of card-swiping terminals nationwide by installing 557,055 electronic data capture machines by March of next year.

The administration has already begun giving welfare and subsidies payments to parents of newborn babies and the needy through the national e-payment system, a move that helps it better gather information about targeted groups that are in need of assistance.

The system helps alleviate the government's budgetary burden from providing blanket assistance, which can result in inefficient delivery of aid.

For e-tax, the Revenue Department is testing its system by allowing business operators to try it before big data analytics are installed, likely in 2022. The system will allow the department to see the transaction details that are taxed and the documents of both buyers and sellers, shortening the examination period for tax returns. This should mean taxpayers can receive tax refunds faster and fake tax returns can be detected, improving tax collection efficiency.

National broadband network

Installation of the 15-billion-baht national broadband network is part of the government's effort to provide affordable high-speed internet access to low-income rural households, in compliance with the nation's digital infrastructure development road map.

The Digital Economy and Society Ministry rolled out the first phase of the network in early February across 99 villages in 14 provinces, with the introduction of commercial affordable high-speed internet service planned for this year.

In each village, a WiFi hotspot will enable free internet access. The government aims to install the network across 40,432 villages.

TOT has been assigned to handle installation in 24,700 villages, while the National Broadcasting and Telecommunications Commission (NBTC) will handle the remaining 15,732 villages.

Progress is on schedule for the project, as TOT aims to complete installation for at least 3,000 villages by May, finishing its portion of the network by year-end.

The NBTC plans to complete its contribution to the network by 2018.

Smart cities

The smart cities initiative is an urban renewal and retrofitting programme by the government to develop the digital economy.

Phuket was designated as the first smart city in a pilot project last year. Chiang Mai and Khon Kaen are the next destinations for smart city schemes.

The government also envisions transforming three provinces -- Rayong, Chon Buri and Chachoengsao -- into smart areas in the EEC, developing a digital ecosystem conducive to innovative-driven enterprise by 2018.

The smart areas are meant to promote investment in new S-curve industries in the EEC, including robotics, aircraft, digital businesses, biofuels and biochemicals.

Tax reform

Tax overhaul is one of the government's top agenda items because it wants to redistribute income and cultivate social equality, smoothing schisms it blames for the fragmented country. Since the coup, tax reform has made great strides and the three tax-collecting agencies have been revamped.

Inheritance and gift taxes have been pushed through the legislature, though both are so skimpy they contribute a small amount to the government coffers. The taxes took effect in early 2016.

A mere 1-2% of tax income is generated by asset-based taxation, with the lion's share coming from income and consumption.

A new personal income tax structure has come into force from this year.

The new structure increases the income band for the 30% bracket to 2-5 million baht from 2-4 million, with the top rate of 35% starting from 5 million. The 5%, 10%, 15%, 20% and 25% income bands remain unchanged.

The expense allowance cap is raised to 50% of annual income, but not exceeding 100,000 baht, while personal allowance has been doubled to 60,000 baht per year. The previous expense allowance was capped at 40% of annual income, but not exceeding 60,000 baht.

With the new structure, the threshold income of individual taxpayers not liable for income tax is raised to people earning just shy of 26,000 baht a month, up from 20,000 baht.

The new structure also abolishes the previous cap on child allowance, which was limited to three. The allowance per child also doubles to 30,000 baht from 15,000.

The land and buildings tax, pending the second reading by the National Legislative Assembly (NLA), is expected to come into effect next year. The new property tax is aimed at narrowing income disparity, expanding the national taxpayer base, increasing tax income for local administrations and improving land use nationwide.

"New tax laws have been implemented. Now we need to improve tax collection efficiency, which is why an e-tax system was adopted," said a source at the Finance Ministry.

The Customs Department has waived tariffs on raw materials for many sectors, with the exception of agricultural and automotive segments, to sharpen the competitiveness of local manufacturers.

For the Excise Department, its new excise tax law, to be enforced in September, will change the base for excise tax computations to recommended retail price from ex-factory prices and costs, insurance and freight values.

The new tax calculation method is intended to create a level playing field among manufacturers and allow the government more flexibility in imposing taxes to control products that are harmful to health such as cigarettes.

An environmental tax is one of the few taxes that has not been implemented under the Finance Ministry's tax reform roadmap.

The Finance Ministry has proposed to levy a tax on tap water usage, but must first discuss the issue with the Natural Resources and Environment Ministry to prevent overlapping taxes as the latter has floated an idea to charge fees on tap water consumption.

The government is also mulling introduction of a land windfall tax on inflated land values from infrastructure developments, as well as a withholding tax on gains from investments in fixed-income funds as ways to increase state revenue.

Infrastructure

Big-ticket infrastructure projects is one area where the Gen Prayut government can claim significant progress.

Although the development template of those projects is mostly identical to previous civilian governments, the current administration has jump-started infrastructure development stalled for years by political instability and discontinuity.

Gen Prayut's cabinet approved in December 2015 a combined 1.79 trillion baht as part of an ambitious development plan for 2015-22, then picked 20 priority projects with a total investment value of 1.4 trillion baht for a 2016 transport infrastructure action plan.

Of the 20 projects, eight infrastructure projects worth 330 billion baht have started construction, while seven, mostly double-track rail networks worth a combined 247 billion, are in the bidding process.

One project (the southern Purple Line from Tao Poon to Rat Burana worth 131 billion baht) is being proposed for cabinet approval, while two others (a high-speed train line from Bangkok to Hua Hin, and from Bangkok to Rayong worth a combined 247 billion) are being proposed to the Public-Private Partnership Committee for vetting. Two other projects (Sino-Thai and Japan-Thai high-speed train routes) are under negotiations and having feasibility studies conducted.

Kobsak Phutrakul, assistant minister to the Prime Minister's Office, said Gen Prayut has ordered for the Thai-China rail project to start construction this year. Certain delayed projects have also been scheduled to be initiated this year.

Porametee Vimolsiri, secretary-general of the National Economic and Social Development Board (NESDB), said there are 36 other large-scale infrastructure projects worth 896 billion baht planned for government investment this year, including two worth 1.36 billion that are ready for operation.

The two projects are the ferry service linking water and land transport between the two sides of the Gulf of Thailand to promote tourism at seafront provinces, and a common ticketing system for public transport services.

Of the remaining 34 projects, five have started construction, 15 are in the bidding process, eight are being proposed to the cabinet and the Public-Private Partnership Committee, four are under preparation, and two are described as "projects the government is eager to push".

Mr Porametee said infrastructure development for the first phase of the special economic zone, which covers Tak, Sa Kaeo, Trat, Mukdahan, Songkhla and Nong Khai provinces, is in the process of development. Some 40 projects with proposed private investment of 8.5 billion baht have applied for promotional privileges from the Board of Investment (BoI).

The EEC development plan (2017-21) calls for 48 development projects with an investment value of 6.99 billion baht. These projects are mostly undergoing feasibility studies and environmental impact assessments this year.

On April 11 the cabinet approved in principle the second draft bill on EEC development, which will later be submitted for reading to the Council of State. The first draft was approved by the cabinet last October.

The government is expected to open bids sometime soon for the third phase of the Laem Chabang deep-sea port upgrade worth 88 billion baht and expansion of U-tapao airport. Early next year, bidding is anticipated for the 158-billion-baht Bangkok-Rayong high-speed rail.

Welfare and social safety net

As 20% of Thais are estimated to be over 60 by 2030 and more than 10 million people live in poverty, the government is seeking ways to provide welfare and subsidies to it citizens, strengthening the social safety net to better cover basic needs and healthcare with a limited budget.

The Fiscal Policy Office has estimated the government's financial burden to the Social Security Fund (SSF), the National Savings Fund (NSF) and the Government Pension Fund will swell to 698 billion baht in fiscal year 2024 from 290 billion in fiscal 2016.

The government now spends 60 billion baht annually to provide a living allowance to 8 million people over 60, and another 600 million annually in monthly subsidies for 4 million mothers who are not members of the SSF and have children under three years of age.

The administration has made big strides in pushing for a series of measures to reinforce a retirement safety net to ease the state's financial burden as the population ages. The mandatory provident fund is expected to be enforced in 2018.

Last year the cabinet also approved a package allowing companies that hire ageing workers with a salary of 15,000 baht a month or less to be eligible for a double corporate tax deduction on expenses incurred. Other measures in the package included reverse mortgages -- a home loan that allows the elderly to convert their home equity into cash.

In 2015 the government successfully pushed for the long-delayed establishment of the NSF, a voluntary retirement safety net for 25 million non-formal workers.

For welfare and subsidies for the needy, the number of registrants for the government's aid scheme reached 13.5 million on May 15, the last day of registration. There were 8.27 million registrants last year, but 1.3 million of them were later deemed unqualified.

The Finance Ministry's criteria for welfare aid this year requires applicants to be unemployed or have annual income of 100,000 baht or less last year. They must also have savings, bonds and savings certificates worth less than 100,000 baht combined. If applicants own property, the space must not exceed 35 square metres for a condo unit, 25 square wah for a townhouse or 10 rai of land for agricultural purposes. Applicants must be Thai nationals aged 18 or older.

The government's initial plan is to offer qualified people cards to take free rides on public buses and receive discounts for limited use of electricity and tap water. For those living below the poverty line -- with income of 30,000 baht a year or 2,500 baht per month -- the government plans to offer them cash handouts to help cover living costs.

Thailand 4.0

The government led by Gen Prayut has set the "Thailand 4.0" policy as a key means of helping the country escape the middle-income trap, and has therefore laid out policies to accommodate it. One crucial part of the path going forward: investment.

The government has pegged new investment, particularly foreign investment in regards to innovation, as a key to help generate added value for the both the economy and Thai society.

Thailand 4.0 is thus seen as a new economic model, for which the government and private sector must team up to move forward.

With investment viewed as a means of bringing in more income, the government has sought to attract foreign direct investment in its targeted industries, which are expected to help create added value for Thai products and push the country toward the 4.0 era.

Major policies and measures that have been approved recently include massive investment in infrastructure to support new-generation industries, more attractive privileges to attract foreign companies to invest in high-tech industries and the creation of the EEC to accommodate new industries and promote investment in the Thai people to prepare them for the 4.0 era.

The EEC is designated to accommodate new innovative industries not only from Thai investors, but also from foreign parties, leading to technology transfers.

BoI is playing a major role in issuing more privileges to attract foreign investors as it aims for new investment value to reach 600 billion baht this year, up from 500 billion in 2016.

The BoI has extended corporate income tax waivers from eight years to 10 for those investing in new S-curve industries. These are robotics, aviation, logistics, biofuel, biochemical, digital and medical industries, said Hiranya Suchinai, the BoI's secretary-general.

The tax-free period could be extended to 13 years for parties investing in targeted industries.

Regarding private investment, the situation remains lacklustre as investment value thus far remains lower when compared with last year.

According to the BoI, Thailand's investment proposals dropped 17% to 62 billion in the first quarter of this year, down from 75 billion in the same period of 2016.

Actual investment in the first quarter was 80 billion baht, accounting for only 16% of the year's total investment target of 600 billion.

Ms Hiranya said she expected more investment to come for the duration of the year to help reach the target. But there are no clear signs at the moment where the new investment will come from since most foreign investors have remained concerned over the consistency of the investment policy, particularly regarding the EEC.

Ease of doing business

Ulrich Zachau, the World Bank country director for Southeast Asia, lauded Thailand for improvements in the area of business facilitation while leading a team of researchers during a meeting with Gen Prayut last week.

His remarks have provided a positive signal for Thailand, which has been striving to improve its ranking in the World Bank's 2018 Ease of Doing Business report.

Thailand's ranking in last year's report, which surveyed 190 countries, climbed to 46th from 49th place. Thailand ranked ninth in Asia, trailing only Singapore and Malaysia in Asean.

The country is in desperate need of new private investment to help drive sustainable economic growth.

The World Bank's 2018 report is expected to be issued in October.

According to the latest report by the NESDB, private investment is the only economic engine that remains in the red.

While public investment expanded 9.7% year-on-year in the first quarter, private investment during that period dropped for the third straight quarter by 1.1%, against a 0.4% contraction in the fourth quarter of 2016 and a 0.8% contraction in the third quarter.

The state planning unit hence cut its private investment forecast on May 15 to only 2% growth from 2.5%, while government investment was slashed to 12.6% growth from 14.4%.

The NESDB's total investment growth projection was cut to 4.4% this year from 5.3%, thanks largely to slower-than-expected private investment.

The government has therefore undertaken key reforms aimed at simplifying the process of starting a business and paying taxes.

In 2016, Thailand introduced reforms to streamline the business registration process by creating a single window for registering payments and providing credit scores to banks and financial institutions.

The government has also made importing and exporting easier by introducing electronic submission for customs declarations.

Further trade-related reforms are a top priority, especially as Thailand seeks to increase foreign investment in the country.

Earlier in 2016, the government gave its approval to liberalising foreign investment in four businesses: commercial banks, representative offices of foreign banks, and life and non-life insurance.

Responsible authorities are studying the possibility of liberalising more business activities under List 3 of the Foreign Business Act, as well as those relating to the government's investment promotion policy under the Thailand 4.0 economic development model, which focuses on the digital economy and advanced technology.

Meanwhile, a new draft single-shareholder companies law, which allows for the incorporation of juristic persons registered by only one person, is now pending consideration by the NLA and is expected to come into force this year.

The amended Trade Competition Act is also scheduled to take effect in September this year after the draft bill was approved by the NLA and is now pending royal endorsement.

In a move to speed up amending existing laws seen as impediments to the ease of doing business, the government in April invoked the powerful Section 44 of the interim charter for faster amendments to the Civil and Commercial Code, the Labour Protection Act, the Social Security Act, the Public Limited Companies Act and the Bankruptcy Act.

The new Civil and Commercial Code aims to help entrepreneurs by allowing registration in any district nationwide. Existing law requires entrepreneurs to register their companies at the location where they have been established.

The amended Labour Protection Act will eliminate requirements that companies must send working rules and regulations to the Labour Protection and Welfare Department. Alterations to the Social Security Act would compel employers to make greater contributions to pensions after their employees retire from 55 years of age onwards.

The revised Public Limited Companies Act would require that a lower proportion of shareholders be present when an extraordinary meeting is called, with the aim of protecting small shareholders.

Energy Reform

A policy to restructure energy prices was one of the key challenges facing the National Council for Peace and Order (NCPO). The process got under way during the early stages of post-coup Thailand through the unwinding of huge subsidies for oil and gas, which had been in place for decades.

In 2013, energy experts estimated that 300 billion baht had gone towards subsidising all forms of energy from 2007-2013. These huge subsidies had distorted energy prices across the board.

Fortunately, global oil prices collapsed in mid-2014, falling from a high of US$147 a barrel to around $40 a barrel in that year.

Major price distortions were seen in diesel and cooking gas prices, which the subsidies had effectively cut to 30-40% of their actual prices. With the global oil price dropping so dramatically in 2014, the military government was able to gradually begin unwinding the subsidy without oil and gas consumers feeling the pinch.

For compressed natural gas (CNG) in the transport sector, a fuel that is solely operated by the country's natural oil and gas conglomerate PTT Plc, the price subsidy had made the company suffer multi-billion-baht losses for nearly a decade. The gradual cuts in the CNG subsidy also helped PTT half its losses to 5 billion today.

The NCPO plans to free up entirely the cooking gas and CNG trading businesses in order to prevent the incoming elected government from using energy price distortions as a tool to gain votes.

The restructuring of energy prices has come at a time when motorists are enjoying cheaper oil prices, easing the transition away from subsidies.

The NCPO has sought to push the private sector to invest in the renewable energy sector at a time when the country is highly dependent on natural gas, which accounts for 70% of Thailand's power generation, despite the fact that it is quickly depleting.

But the policy to open up the energy sector has not been embraced by everyone in the industry, especially when it comes to the policy of diversifying power-generating resources from fossil fuels to renewable sources. The government, therefore, has looked at other, more controversial energy sources such as coal.

But attempts to switch to coal are still a long way off. Thailand first looked into developing two coal-fired power plants in 1994. But those facilities never materialised due to strong opposition, forcing the government to switch to gas-fired ones.

The latest attempt to develop a coal-fired power plant in the coastal city of Krabi has hit a wall, with civic activists and local communities strongly opposing them. The government has now postponed the projects by two years.

Public opposition has also extended to the existing Mae Moh coal power plant in Lampang, with plans to replace its power generators caught up in the public hearing stage.

That leaves the county in a state of uncertainty regarding its energy security, as the greater dependency on gas, the greater the risks, as gas supply in the Gulf of Thailand is depleting.

Gas supply disruptions from blocks in Myanmar are another risk since such disruptions have become more common over the past five years, forcing the authorities to come up with contingency plans in the event of a blackout.

Apart from gas supply disruption, Thailand is also facing the risk of rising global gas prices since the country is about to import more of the commodity for its power generating sector. Thailand is expected to import more than 33 million tonnes of expensive liquefied natural gas annually by 2036, up from 4 million tonnes now.

Tourism

The military-led government has pinned high hopes on tourism to drive the economy, with exports only beginning to recover after having been in a slump for several years.

The ambitious target foresees 40 million foreign tourist arrivals by 2020, with China as the main source representing one-third of foreign visitors to the country.

But the crackdown on zero-dollar tour operators late last year caused a hiccup in otherwise strong tourism growth, with the number of Chinese tourists falling 8% in the first four months of this year. The 8% drop, however, is a drastic improvement when compared with the decline of 30-40% a month in the last quarter of 2016.

Thailand aims to attract 33 million foreign visitors this year and pull in 2.7 trillion baht, representing 15-16% of the country's GDP.

Arrivals have continued to increase from 24.8 million in 2014, reaching 29.9 million in 2015 and hitting 32.6 million last year.

But the effects from the zero-dollar tour crackdown are not over as many travel agents say Chinese tourists prefer to come in tour groups. The number of free independent tourists with greater purchasing power, however, are on the rise. Nonetheless, the government sees China as crucial to Thailand's tourism industry going forward.

Meanwhile, to reduce Thailand's dependence on foreign tourists, the government is also looking to drive domestic tourism by encouraging Thais to travel more at home. Secondary provinces have been consistently promoted along with community tourism, which will help generate income in rural areas.

The government also implemented tax incentives last year to lure Thais to travel more by allowing them to cover hotel and other tour expenses through personal income tax deductions.

After the coup, the government put forth a lot of effort in the second half of 2014 to restore confidence among foreign tourists and burnish the country's tarnished image, with some foreigners viewing the country as unsafe to visit. Measures spanned from organising a series of international road shows to providing information to the international community, stepping up safety measures for foreign tourists, giving assistance to affected operators and promoting domestic travel to develop more tourism infrastructure.

New tourism products have also been developed by promoting secondary provinces under the "12 Cities Hidden Gems" project.