Challenges and Regulatory Trends for the Automotive Sector in Thailand

Challenges and Regulatory Trends for the Automotive Sector in Thailand

Although the vast majority of global cars manufacturers have already a corporate presence in the Kingdom of Thailand, the three largest manufacturers originally come from Japan: Toyota, Isuzu and Honda. The automobile industry in Thailand as a whole account for 12% o GDP and employ more than 550,000 workers.

Due to the economic importance of the automotive sector, Thailand enforces Tax and Non-Tax Incentives under the Board of Investment (“BOI”) scheme as seen in Section 4: Metal products, machinery and transport equipment. In particular, we must mention the manufacture of general automobile, manufacture of engines and manufacture of vehicles parts as business activities are entitled to obtain BOI incentives. This regulation entitles to Corporate Income Tax exemptions up to 8 years, as well as Non-Tax incentives including permission to bring in expatriate workers, own land and take or remit foreign currency abroad.

Other regulations are applicable within the sector such as the Factory Act and Machinery Registration Act, but we advise that as this sector is under the Ministry of Industry, the regulatory framework can be quite complex and a wide range of laws and regulations are strongly connected in different layers with the automotive sector.

The new regulatory forecast is tightly linked with the business pipeline and prospects of ASEAN as a whole. The forecast for 2017 is that Thailand national sales of cars will grow from 750,000 to 800,000 units but exports will remain static with 1.2 million units

One of the main reason of this lack of export transactions is obviously the geopolitics as Thailand is a key export base for compact pickup trucks while regions such as Middle East, one of the main traditional buyers of these type vehicles, is suffering a slowdown in the economy due to domestic conflicts and the fall in the price of the oil.

In our opinion, the more than 20 Free Trade Agreements signed by Thailand can improve the long term commercial relationships but the short term strategic partners can be found now within the region. The situation looks much more positive for Thailand regarding the shipment to other ASEAN countries, hereby the economic growth of neighbor countries can bring a very positive feedback to Thailand based manufacturers, especially for trucks and industrial vehicles due to the vast portfolio of infrastructures projects and Private Public Partnership laws being implemented across the region.

In our opinion there are still opportunities for new investors in the automotive sector in Tier 2 and 3.  We acknowledge around 1,700 companies, most of them SMEs, that supply components to 709 companies in Tier 1, and 18 assemblers of cars and motorcycles mainly in the Provinces of Rayong, Chonburi and Samutprakarn.

On the other hand, the manufacturing of eco vehicles will increase during 2017 as some manufacturers such as Nissan Motor has announced already production plans due to the reduction of Excise Tax for eco vehicles. In addition to Nissan, other manufacturers such as Honda, Mazda, Mitsubishi, Suzuki, Ford, SAIC Motor-CP, Volkswagen and Toyota are expected to increase the sales of eco-cars. Under the BOI regulations, these companies are committed to manufacture 100,000 eco cars per year but still the industry has difficulties to embrace new technologies.

Nowadays manufacturers are expecting to see the upcoming regulations for Electric Vehicles as Thailand aims to reduce CO2 emissions. From a legal perspective, Thailand must implement new regulations to facilitate the arrival of the electric vehicles era as the country law makers have to understand the importance of this new segment for the purpose of strength the strategic position of the country as a leading hub for the automotive industry within the ASEAN Free Trade Area.

Government support of the electric vehicles industry will facilitate cheaper vehicles to consumers, less pollution, higher quality of life in South East Asia mega cities and the arrival of a new generation of automotive industry model that will not be tempted to relocate in countries such as Vietnam or Indonesia. Since August the government is enforcing tax incentives (waive import tariffs on battery-electric vehicles and granting BOI incentives to investors who set up assembly plants and produce parts such as batteries) but the promotion of manufactures of electric vehicles based in Thailand still face very strict investment and requires comprehensive business plans.

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