17 May 2016 (16-2704) Page: 1/6 Committee on Subsidies and Countervailing Measures Original: English SUBSIDIES REPLIES TO QUESTIONS 1 POSED BY THE UNITED STATES REGARDING THE NEW AND FULL NOTIFICATION OF THAILAND 2 The following communication, dated 13 May 2016, is being circulated at the request of the Delegation of Thailand. Program covered in the notification Investment Promotion Incentives The United States appreciates Thailand's responses to the previous questions of the United States regarding Thailand's prior notification the Board of Investments (BOI) incentives pursuant to Investment Promotion Act (1977) (Amended 1991, 2001) (IPA). 3,4 We remain concerned however, that the prior notification may not reflect the breadth of programs within the IPA framework, in light of the BOI's discretion in determining what projects or sectors to promote. In Thailand's previous answers, a number of BOI-related programs were identified, as described below. With regard to each program, could Thailand provide information with sufficient detail to satisfy the notification requirements of Article 25.3 of the SCM Agreement? Additionally, could Thailand explain if the program draws on incentives provided under any other law or legal measure besides the IPA, and if so, identify the law or legal measure? 1. Passenger Car and Large-Sized Motorcycle Program In 2007, the BOI added passenger car and large-sized motorcycle assembly to the list of investment activities eligible for IPA incentives. The BOI list of eligible activities for investment promotion can be amended for update in consistency with economic development. In 2007, BOI added assembling of passenger car and large-sized motorcycle to the eligible list of activities entitled to investment promotion to create competency in the two sectors, thus creating business for the existing automotive industry by offering tax incentives as listed in G/SCM/N/220/THA-G/SCM/N/253/THA including exemption of corporate income tax, import duty on machinery and raw materials. 2. Zone 3-Equivalent Investment Incentives for Certain Industries Tax incentives equivalent to Zone 3 incentives were introduced by the BOI in 2010 for investments in industries related to energy conservation, alternative energy, ecofriendly products and high-technology businesses. 1 G/SCM/Q2/THA/26. 2 G/SCM/N/284/THA (6 November 2015), Subsidies Notification. 3 G/SCM/N/220/THA-G/SCM/N/253/THA (11 July 2013), Subsidies Notification, page 5, program II, I-EA-T Investment Privileges. 4 G/SCM/Q2/THA/25 (13 June 2014), Reply to Questions Posed by the United States.
- 2-3. Duty and Tax Incentives for Energy Conservation and Alternative Energy Utilization Incentives, including exemptions on import duty for machinery and corporate income tax, were introduced in 2010 for producers who submit investment plans for changes in machinery to save energy, use alternative energy or reduce environmental effects. 4. Duty and Tax Incentives for Technology Upgrade in New Product Manufacturing Incentives, including exemptions on import duty for machinery and corporate income tax, were also introduced in 2010 for producers who invest in production line upgrades for the manufacture of new products. To enhance domestic industrial growth and upgrade to a more knowledge-based industry that uses higher technology, by virtue of the Investment Promotion Act of B.E. 2520, BOI has announced investment promotion for sustainable development whose details of the program can be found in attachment 1. Attachment 1 INVESTMENT PROMOTION INCENTIVES 1. Title of the subsidy program Investment Promotion for Sustainable Development 2. Period covered by the notification 1 January 2013 31 December 2014 3. Policy objective and/or purpose of the subsidy To enhance domestic industrial growth and upgrade to a more knowledge-based industry that uses higher technology 4. Background and authority for the subsidy The legal basis of the investment promotion incentives is the Investment Promotion Act (1977) amended in 1991 and 2001. The responsible authority is the Office of the Board of Investment (BOI). 5. Form of the subsidy Tax concessions such as exemption/reduction of corporate income tax, exemption/reduction of import duties on machinery, reduction of import duties on raw materials, and special deduction of certain expenditures. 6. To whom and how the subsidy is provided 1. A wide range of activities covering especially activities related to energy conservation and alternative energy, activities related to eco-friendly materials and products, high-technology businesses are eligible for investment promotion incentives. The scheme is not specific to any part of the country. All areas throughout the country (except Bangkok) shall be designated as an Investment Promotional Zone for this scheme until December 31, 2013. 1. Exemption of import duty on machinery 2. Exemption of corporate income tax for eight years
- 3-3. Fifty percent reduction of corporate income tax on the net profit generated from the investment for not more than five years from the date on which the incentive period under Section 31 ends. 4. Double deduction for transportation, electricity and water costs for 10 years from the date of first income derivation from promoted activity 5. Deduction of infrastructure installation or construction costs from net profit in addition to normal depreciation of not more than 25% of the investment in promoted project. Such deduction can be made from the net profit in one or several years during the period of 10 years from the date of the first income derivation from promoted project. 2. Measure to promote energy conservation, alternative energy utilization or reduction of environmental impacts. Under this measure, incentives are given to existing projects, be it BOI or Non-BOI promoted companies to invest in upgrading the machinery to modern technology that reduces energy consumption or use alternative energy or reduce environmental impacts. 1. Exemption of import duty for machinery 2. Three-year corporate income tax exemption on the revenue of an existing project, accounting for 50% of the investment under this measure and excluding the cost of land and working capital, except for environmental impact reduction which will be granted an eight-year corporate income tax exemption, accounting for the 50% of the investment under this measure, excluding the cost of land and working capital. 3. Corporate income tax exemption period shall start from the date of revenue derivation after promotion certificate issuance. 3. Measure to promote production efficiency improvement by technology upgrade for the manufacturing of new products. Under this measure, incentives are given to existing projects, be it BOI or Non-BOI promoted companies to invest in upgrading the existing production line to be able to manufacture new products. 1. Exemption of import duty on machinery regardless of zone 2. Three-year corporate income tax exemption on revenue derived from the production of new products, not exceeding 50% of the investment in upgrading the production line 4. Measure to solve environmental problems. Under this measure, incentives are given to existing projects, be it BOI or Non-BOI promoted companies, to comply with the environmental management criteria and conditions specified by the government with pollutant values less than the legal control rate and successfully reduce the environmental impact. 1. Exemption from import duty on machinery used for machinery improvement to reduce the environmental impact. 2. Eight-year corporate income tax exemption on the revenue of an existing project, accounting for 50% of the investment in machinery improvement, excluding the cost of land and working capital. 3. The corporate tax exemption period will start from the date of income derivation after promotion certificate issuance. 7. Amount of the subsidy There is no specific budget earmarked for investment promotion incentives. The information on the subsidy per unit therefore cannot be provided. No statistics on corporate income tax exemption and reduction are available.
- 4-8. Duration of the subsidy and/or any time attached to it Applicants must submit the application by December 31, 2013 and complete the implementation within three years from the date of promotion certificate issuance. However, the incentives granted to each investment are subject to certain time limits. 5. Incentives under the Skill, Technology and Innovation (STI) Scheme Introduced in 2006 and amended in 2009, this program promotes the development of skill, technology and innovation in existing promoted activities by providing additional corporate income tax exemptions. Industrial Estate Authority of Thailand (I-EA-T) We note that previously Thailand stated that the local content requirements of this program were eliminated as of 1 August 2000. 5 However, according to the Secretariat's Report for the latest Trade Policy Review of Thailand (TPR/326) 6, pursuant to the 2007 I-EA-T Act, "raw materials and components are entitled to tax and duty exemptions if they are produced locally". 7 Could Thailand clarify whether local content continues to be a requirement for the tax and duty exemptions under this program and if so, discuss this requirement in the context of Article 3.1(b) of the Subsidies Agreement? According to Industrial Estate Authority of Thailand Act, B.E. 2522 (1979), as last amended by the Industrial Estate Authority of Thailand Act (No.4), B.E. 2550 (2007), Section 52/1 provides that "In the case where materials, including products, by-products and other things arising from the manufacture, which are taken out of free zone shall be imposed with taxes or duties and where domestic raw materials are brought into free zone to manufacture, mix, assemble, or pack or to do anything with those materials whereby those domestic raw materials are unable to refund for, or are not exempted from, duties, the price of those domestic raw material shall not be taken into the calculation of taxes or duties in accordance with the rules, procedure and conditions as determined by the Director-General of the Customs Department." Programs not covered in the notification Information contained in Thailand's Trade Policy Review indicates a number of other programs potentially subject to notification obligations. Accordingly, for each of the programs described below, the United States respectfully requests that Thailand consider notifying the program or explain why the notification requirements of Article 25 do not apply. Additionally, please respond to the specific questions regarding each program where indicated below. 1. Tax Coupons on Exported Goods Under the Tax and Duty Compensation of Exported Goods Produced in the Kingdom Act B.E. 2524 (1981), "exported goods manufactured in Thailand continue to be eligible for tax coupons, which may be used to pay taxes and duties". 8 Could Thailand explain how this program is consistent with obligations under Article 3.1(a) of the Subsidies Agreement? 2. Income Tax Deduction for R&D Expenses Thailand's corporate income tax measures include "a number of exceptional allowances applied in calculating taxable profit, including a 200% tax deduction of expenses on R&D, job training " 9 5 G/SCM/N/220/THA-G/SCM/N/253/THA, page 5, program II, I-EA-T Investment Privileges. 6 WT/TPR/S/326 (20 October 2015), Trade Policy Review Report by the Secretariat: Thailand ("TPR/326"). 7 TPR/326, page 67, paragraph 3.94. 8 TPR/326, page 67, paragraph 3.93. 9 TPR/326, page 72, paragraphs 3.110.
- 5 - A 200% tax deductions of expenses on R&D, job training, and special measure/equipment for disabled persons do not aim to attract any particular type of businesses but are given to business sector as a whole. This is in order to promote the technological advancement, human resources, and also assisting disabled person via private entity; therefore, these incentives are not considered a government subsidy for investors. 3. Tax Deductions for Certain Expenditures Tax incentives "such as exemption/reduction of corporate income tax, exemption/reduction of import duties on machinery, reduction of import duties on raw materials, and special (e.g., double) deduction of certain expenditures " that have not yet been "notified to the WTO". 10 Thailand has made the notification of its new and full investment promotion incentives for the period covered 2013-2014 as circulated in G/SCM/N/284/THA. Measures issued after such period will be notified to the WTO for the review period covered 2015-2016 in accordance with the obligations pursuant to the Article XVI:1 of the GATT 1994 and Article 25 of the Agreement on Subsidies and Countervailing Measures. 4. Provision of Electricity Below Cost Thailand's electricity authority, EGAT, supplies electric power to certain customers below cost. 11 Could Thailand provide information as to what classes of customers receive below-cost electricity and whether these include particular industries or producers? The power tariffs that was announced and collected from consumers is guided by Thailand's power tariff policy, which indicated that power tariffs must reflect production cost and must be fair to both power producers and consumers. Moreover, power tariffs for consumers in the same category must have the same level of tariff (Uniform tariff) except for the disadvantages and low-income people who will receive subsidy. For this reason, there is no subsidization and supplying electric power to customers below cost (according to Article 25). Therefore, the notification requirements of Article 25 do not apply to this program. A group of consumers that receive subsidy and pay power tariff below cost is consumer category 1.1 Residential. Consumer with the installation of power meter not over 5 AMP and with the monthly consumption not over 50 kwh (low-income people) will be exempt from paying power tariff. This is due to Thailand's power tariff policy which created a mechanism to assist the disadvantages/low-income people and does not include other consumer categories (industries and producers). 5. Eco-Car Scheme Tax and Duty Incentives Launched in September 2013, the "Second Phase" of Thailand's Eco-Car scheme provides numerous tax incentives (corporate tax, import duty and other tax benefits) for substantive investments and production, with a threshold of 100,000 cars per year. 12 Excise tax is the tax applied to domestic consumption and collected from domestically produced goods and imported goods only. The Excise Department treats domestically produced cars and imported cars equally by applying the same tax rate. It is not applicable to exports and has no bearing on the selling price structure of exported cars. The 2 nd phase of Eco-Car scheme was announced in 2013 with the condition that the application must be made by 2014. To receive investment promotion under this scheme, certain criteria will 10 TPR/326, page 73, paragraph 3.114. 11 TPR/326, page 77, paragraph 3.126. 12 TPR/326, page 77, paragraph 3.127.
- 6 - apply, including the minimum actual production of 100,000 cars by 4 th project and the requirement to have a certain process in the project. year since the start of