1.

INTRODUCTION

Thailand is located in the heart of Southeast Asia. With a surface area of approximately 513,000 sq km, Thailand is the 50th largest country in the world in terms of total area. Thailand was also the 21st most populous country, with approximately 64 million people as of December 31, 2008. Of the total population, roughly 2.2 million legal and illegal migrants reside in Thailand. Figure 1: Thailand in Asia (heart of Southeast Asia)

Thailand experienced the world's highest growth rate from 1985 to 1995, following which it saw a contraction in economy by 1.9% in 1997. The year uncovered weaknesses in the financial sector and forced the then Prime Minister, Chavalit Yongchaiyudh, to float the currency. The country is considered a newly industrialized country, with tourism and exports contributing significantly to the Thai economy. Thailand is a newly industrialized country. After enjoying the world's highest growth rate from 1985 to 1996 ( averaging almost 9% annually ) increased pressure on Thailand's currency, the baht, in 1997, the year in which the economy contracted by 1.9% led to a crisis that uncovered financial sector weaknesses and forced the government to 1

float the currency. Pegged at 25 to the US dollar from 1978 to 1997, the baht reached its lowest point of 56 to the US dollar in January 1998 and the economy contracted by 10.8% that same year. The collapse prompted a wider Asian financial crisis. Thailand's economy started to recover, expanding by 4.2% in 1999 and 4.4% in 2000, primarily as a result of exports. Although the growth weakened to 2.2% in 2001, due to a slowdown in the global economy, strong growth in Asia, a relatively weak baht and increasing domestic spending put the nation back on the path to recovery in the subsequent years. Figure 2: Bath bills and coin

Baht bills and coins Symbol

Aluminium satang coins

Thailand exports over $105 billion worth of products annually. Major exports include rice, textiles and footwear, fishery products, rubber, jewelry, automobiles, computers and electrical appliances. Thailand is the worlds no.1 exporter of rice, exporting 6.5 million tons of milled rice annually. Rice is the most important crop in the country. Thailand has the highest percent of arable land, 27.25%, of any nation in the Greater Mekong Sub region. About 55% of the available land area is used for rice

production. Substantial industries include electric appliances, components, computer parts and automobiles, while tourism contributes about 5% of the Thai economy's GDP. Thailand uses the metric system but traditional units of measurement and imperial measure (feet, inches) are still much in use, particularly for agriculture and building materials. Years are numbered as B.E. (Buddhist Era) in education, the civil service, government, and on contracts and newspaper datelines; in banking, however, and increasingly in industry and commerce, standard Western year (Christian or Common Era) counting prevails.

2.0

LITERATURE REVIEW

2.1

Brief Historical Background

Thailand is a lower middle-income economy comes under the East Asia and the pacific region, as to the classification made by the World Bank on the basis of income and region for the year 2006. Exports of the country have brought tremendous success for the economy in the recent years. It gets larger exports earnings from the countries such as United States, Japan and Singapore. Important agricultural products in the country are rubber, corn, sugarcane, coconuts, rice and cassava. Major industries are automobile, financial services, tourism and cement. It has a huge reserve of tungsten, antimony, lignite and manganese. In the case of Malaysia, Malaysia is an Upper Middle income economies coming under the East Asia and Pacific region as to the classification made by the World Bank on the basis of income and region for the year 2006. The Malaysian Economy has a followed a free and open system in the recent years. Abundance of natural resources deposits has a made the country one among the top economies over the world. Services sector contributes a larger portion of the GDP followed by the Industries. Major agricultural products in the country are coconut, vegetables, coffee, tea and cocoa. Important industries in the country are tobacco, wood products, textiles, electric goods, and construction goods. The petroleum industry has also experienced a better pace recently. 2.2 Economic structure

With economic growth in Thailand dropping to 2.6% in 2008 and below zero in the last quarter, from the highs of more than 9% during 1985 to 1996, Thailands economic structure is undergoing a major facelift and new macroeconomic policies to promote exports and attract foreign investments are being devised and implemented. The Abhisit administration in 2009 introduced two stimulus packages worth $43.4 billion in order to offset weak external demand and improve confidence. Following the introduction of these packages, the government expected the Thai economy to decline 3.5% in 2009 but improve to 2.5% in 2010. The Thai government welcomes foreign investment and investors willing to meet certain requirements. In order to attract more foreign investment, the government is ready to offer expansion in investment opportunities, especially on green

technology/manufacturers. Although almost 42.4% of the employment is generated through agriculture, the agricultural sector contributes only 12.3% of the total GDP. The contribution of all the sectors to the Thailand economic structure is as follows:

Agriculture: 12.3% Industry: 44% Services: 43.7%

Thailands agricultural products include rice, cassava (tapioca), rubber, corn, sugarcane, coconuts and soybeans. The Thai industrial sector includes the following sub-sectors:

Automobiles and Automotive parts

Financial Services Electric appliances and components Tourism Cement Auto manufacturing Heavy and light industries Appliances Computers and parts Furniture Plastics Textiles and garments Agricultural processing Beverages Tobacco Thailand may face challenges with telecommunications, transportation networks

and electricity generation showing increasing strain during the period of sustained economic growth. The projected energy requirement of the country exceeding the current capacity is one such example. Moreover, the country is facing a growing shortage of engineers and skilled technical personnel. This may limit technological creativity and productivity in Thailand in the future. Although Thailand has demonstrated moderate positive economic growth in recent years, future growth will depend on continued reforms in the financial sector, foreign investment

and improvement in domestic investment and consumption to eliminate the countrys reliance on exports. In the other hand, Malaysia has emerged as a multi-sector economy in the 21st century from being a producer of raw materials until 1970. Efforts are being made by the government to promote value-added production by luring foreign investment in pharmaceuticals, technology industries and medical technology. Some major industries in Malaysia are electronics, electrical products, chemicals, food and beverages, metal and machine products and apparel. Malaysian exports played primary role in the countrys economic growth. In the last two decades of the 20th century, Malaysia experienced an annual GDP growth of 7% along with low inflation. In 2009, the nominal per capita GDP stood at US$6,761 and the nominal GDP at US$191.4 billion. The following graph depicts GDP by sector as of 2009: Table 1: Malaysias GDP by sector

The economic structure of Malaysia can be divided into the following sectors: Primary Sector: Malaysias economic development is largely due to its wealth of natural resources in agriculture and forestry. Some major produces in the country include:

Peninsular Malaysia: Cocoa, Rice, Rubber, Palm and Oil Sabah: Coconuts, Rice, Rubber, Subsistence Crops and Timber Sarawak: Rubber, Pepper and Timber Palm oil and rubber are the major foreign exchange earners in the primary sector. In

the 1960s, the countrys forest reserves depleted at a high rate. Active steps have been taken to plant high-value trees and various timber species. Secondary Sector: Malaysias diversified manufacturing sector is the backbone of its economy. The growth of the manufacturing sector is visible in its 30% contribution to the GDP in 1999 as compared to 13.9% in 1970. Malaysia has abundant natural resources including minerals, liquefied natural gas (LNG), petroleum and tin. Electronic components contribute a significant share in Malaysias manufactures and exports. It is the largest exporter of semiconductor devices and electrical goods and appliances in the world. Tertiary Sector: The service sector of Malaysia predominantly comprises Islamic banking, finance, telecommunications and tourism. In an effort to attract foreign direct investment, Malaysian Prime minister Najib Tun Razak introduced a variety of measures for this sector. There are expectations of Malaysian IT spending to be at $4.5bn in 2010 from US$4.2bn in 2009 due to economic recovery.

2.3

Review of Past Studies

Briefly, there are four key types of push (and pull) factors that help to explain the drive for internationalization by developing-countrys transnational corporations (TNCs). These are (domestic) market condition, cost of production, business condition and government policies (Aminian et al., 2007). First, market-related factors appear to be the strong forces that push developingcountrys TNCs out of their home countries (or, in contrast, pull them into host countries). In the case of Indian TNCs, the need to pursue customers for niche products for example, in IT services and the lack of international linkages are one of the key drivers for internationalization (UNCTAD, 2006). Similarly, Chinese TNCs that have undergone changes in their motivations and destinations of their investments in 1990s, which shifted their aims to acquire advanced foreign technologies and managerial skills. As a result, the number of Chinese investments in US have increased due to their intended means as mentioned earlier (Hong and Sun, 2004). In Malaysia, a remarkable economic growth prior to the 1997 economic crisis had resulted in an increase in the wealth accumulation that was reflected in high domestic savings. These events and a recent economic recession, it had created sluggishness in the demand for property and construction development sectors. This phenomenon had a direct consequence in encouraging Malaysian outward FDI (Ariff and Lopez, 2007). Second, rising costs of production in the home economy especially labor costs are of a particular concerned for TNCs from developing countries such as Malaysia and Thailand (Ariff and Lopez, 2007). Despite these hindrances and obstacles for nations like Malaysia and Thailand, China and India are not immediately affected due to the fact that

both are very large countries with considerable reserves of labor, both skilled and unskilled. Therefore, costs are not yet being the important issue for China and India although their importance as capital exporters is apparent (UNCTAD, 2006). Third, competitive pressures on developing-country firms are pushing them to expand overseas. These pressures include competition from low-cost producers, particularly from efficient East and South-East Asian manufacturers. Indian TNCs, at present time, are relatively immune to this pressure, perhaps because of their higher specialization in services and the availability of abundant low-cost labor. For them, competition from foreign and domestic companies based in the home economy is more important impetus to rather than to go international. Similarly, competition from foreign TNCs in Chinas domestic economy is widely regarded as a major push factor behind the rapid expansion of FDI by Chinese TNCs (UNCTAD, 2006). Such competition can also sometimes result in preemptive internationalization, as when Embraer (Brazil) and Techint (Argentina) invested abroad in the 1990s, ahead of liberalization in their respective home industries. Domestic and global competition is an important issue for developing-country TNCs, especially when these TNCs are increasingly parts of global production networks in industries such as automobiles, electronics and garments (UNCTAD, 2006). In contrast, Daniels, Krug and Trevino (2007) argued that the lack of international competition in the early 1980s in Latin American countries had eventually led to an abrupt decline in an economic growth in the region. Severe restrictions on the inward FDI had resulted in a nonconducive economic environment that did not promote innovation. At the same time, less competition had made regional manufacturers within Latin America had few incentives to create internationally competitive products when they faced little international competition

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in Latin America. Thus, Latin American companies had to develop their core competencies before eventually could vertically or horizontally extended their operations internationally (Daniels et al., 2007). Fourth, home and host government policies have had commanding influence in the outward FDI decisions. Chinese TNCs, on the one hand, regard their governments policies as an important push factor in their internationalization process. Indian firms, on the other hand, have been enticed by supportive host-government regulations and incentives. South African TNCs, among others, mentioned transparent governance, investment in infrastructure, strong currencies, established property rights and minimal exchange-rate regulations as important pull factors. Most importantly, liberalization policies in host economies are creating many investment opportunities, for example through privatizations of state-owned assets and enterprises. In the Malaysian scenario, the efforts toward encouraging local companies in Malaysia to go abroad had been pushed by the Malaysian government through the policy called the New Economic Policy (NEP), under which those companies that are outwardoriented would be receiving several incentives such as tax exemption and so on and so forth (Ariff and Lopez, 2004). In contrast, according to Pavida (2001), strict control of Thais government over foreign exchange transactions and capital movements prior to 1990 drove its TNCs, especially domestic banks to set up overseas branches in its key trading partners (i.e. United States) as well as leading international financial centers (i.e. Hong Kong and Singapore).

3.0

GOVERNMENTS CONTROL TOWARD ECONOMY

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3.1 Thailand Economic Stimulus Package Thailand economic stimulus package of $3.33 billion is largely built along socialwelfare segment. Some other segments targeted are consumption, real-estate, tourism, and medium and small enterprises. Thai central bank, Bank of Thailand, has eased monetary policies as part of an economic stimulus package to Thailand to boost growth. An initial economic stimulus package of Thailand, consisting of 17 programs aimed mainly towards curbing recession was declared in January 2009. Kobak Sabhavasu, deputy premier in charge of economic affairs, in an effort to provide economic stimulus package for Thailand, declared a monthly allowance of Baht 2000 per individual for 9 million low income earners. Further electricity and water were made available to small households free of cost. School education has been subsidized till 1st May, and includes books, uniforms and tuition fees. In addition to aforesaid, Kobak Sabhavasu, to make his economic stimulus package of Thailand a success, has announced financial assistance to individuals earning less than Baht 14,000 a month. This assistance would be provided to all eligible members of Social Security Fund. Most of these Thai economic stimulus package instruments are an impetus for increasing consumer expenditure. For this reason small and rural enterprises are also being promoted aggressively. A rise in domestic consumption would, to a substantial extent, make up for loss in export earnings. In an effort to encourage growth in real estate, new home purchasers would have their tax deduction increased from Baht 100,000 to 200,000. These newly devised mortgage insurance schemes would motivate low-income earners to buy homes at low deposits. 12

As additional Thai economic stimulus packages, their government has declared Baht 15 billion for community based enterprises, Baht 9 billion for senior citizens over 60 years, Baht 6.9 billion for retraining idle workforce, and Baht 3 billion for community based health workers. To boost tourism and services industries government would inject Baht 500 million in form of easy loans. Thailand, like most other countries of world, has been hit hard for financial crisis and finds itself in great economic peril, which is why a Thailand economic stimulus package has become extremely necessary.

3.2

Taxation

Taxes can be divided into 2 types, namely direct tax and indirect tax. The direct taxes are personal income tax, corporate income tax and petroleum income tax. The indirect taxes consist of value added tax, excise taxes (15 items), specific business tax, tariff duties and stamp duties. As typical developing countries, indirect taxes have played the major role in providing the government revenue. It generated around 66 percent of tax revenue in 1995 and declined subsequently to 62 percent in 2004. This reflects a rise in relative share of income tax and taxes on consumption. After the crisis, the Thai economy grew continuously and taxpayers, in particularly a corporation, also began to pay income tax after finishing the 5 years loss carry-forward deduction.

Table 2 Share of Direct and Indirect Taxes in Total Tax Revenue (Percentage)

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Corporate income tax Corporate income tax (CIT) is a direct tax levied on a juristic company or partnership which is established under Thai or foreign law and carries on business in Thailand or derive certain types of income from Thailand. CIT plays the important role in Thailands tax system. It generated 21.4 percent of the total tax revenue in 1996 and 20.3 percent in 1997. After the country faced the economic crisis in 1997, CIT decreased significantly to 13.8 percent in 1998. But now the share of CIT has recovered to the same level at 22.7 percent in 2004. During the period of 1995-2004, the Tax to GDP is average 16.5 percent. The CIT to GDP is average 3.3 percent after the PIT to GDP with an average 4.3 percent.

Table 3 The Proportion of Taxes to GDP (Percentage)

A foreign company means a company incorporated under a foreign law. Generally, a foreign company is treated as carrying on business in Thailand if it has an office, a branch or any other place of business in Thailand or has an employee, agent, and representative or 14

go between for carrying on business in Thailand. There are three types of corporate income taxes for a foreign company as follows: a. A foreign company carrying on business in Thailand is subject to CIT only for net profit arising from or in consequence of business carried on in Thailand, at the end of each accounting period. b. However, a foreign company engaged in international transport is subject to tax on its gross receipts. When a foreign company disposes its profit out of Thailand, such profits will be subject to tax on the sum disposed. Profit also means any sum set aside out of profits as well as any sum which may be regarded as profit. c. A foreign company, not carrying on business in Thailand but deriving certain types of income (i.e., service fees, interests, dividends, rents, professional fees) is subject to corporate income tax on the gross amount received. It is collected in the form of withholding tax by which the payer of income shall deduct the tax from the income at the rate of 10 % of dividends and 15 percent of other type incomes.

Tax Calculation

To calculate CIT for a company carrying on business in Thailand, it is derived from the company's net profits. A company shall take into account all revenues arising from or in consequence of the business carried on in an accounting period and deduct them from all expenses in accordance with the condition prescribed by the Revenue Code. Regarding to dividend incomes, one-half of the dividends received by Thai companies from any other Thai companies may be excluded from taxable income.

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However, the full amount may be excluded from taxable income if the recipient is a company listed in the Stock Exchange of Thailand (SET) or the recipient owns at least 25 % of the distributing company's capital interest, provided that the distributing company does not own a direct or indirect capital interest in the recipient company. The exclusion of dividends is applied only if the shares are acquired not less than 3 months before receiving the dividends and are not disposed of within 3 months after receiving the dividends In calculating CIT, deductible expenses are as follows. 1. Ordinary and necessary expenses. However, the deductible amount of the following expenses is allowed at a special rate: a. 200 percent deduction of research and development expense b. 150 percent deduction of job training expense c. 200 percent deduction of expenditure on the provision of equipment for the disabled 2. Interest, except interest on capital reserves or funds of the company; 3. Net losses carried forward from the last five accounting periods; 4. Bad debts; 5. Donations of up to 2 percent of net profits; 6. Provident fund contributions; 7. Entertainment expenses up to 0.3 percent of gross receipt but not exceeding 10 million Baht; 8. Depreciation: Provided that in no case shall the deduction exceed the given percentage of costs. However, if a company adopts an accounting method, which the depreciation rates vary from year to year, the company is allowed to do so provided that the number

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of years over which an asset depreciated shall not be less than 100 divided by the percentage prescribed below.

Table 4 : Tax Rates

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3.4

Power and Influence of Unions

Malaysia was enjoying higher income than Thailand in 2001 (as seen from Table 1), but its growth record had not been as good as the Thai in the preceding half century. In the early 1950s, Malaysias income was about 3.1 times Thailands, but in the following years, the difference shrank. In 2001, it was 1.8 times. One reason for the relatively poor performance of Malaysia in the 1950s and the early 1960s must have been decolonization. The British administration which ran the country was dismantled, and the Malaysian administration which replaced it was probably not as growth-friendly. The change affected, for example, the investment climate for foreign, especially British investors.

Table 5: Per capita GNI in 2001 in East Asia 18

The Malaysian administration, however, ran the country better than the Thai even after Independence. The period when Communist insurgency was serious was shorter in Malaysia than in Thailand. In the latter, it rose in a crescendo until the late 1970s. In Malaysia, however, it had ceased to be much of a problem by the end of the 1950s. Crimes were also a more serious problem in Thailand where law and order could not be established throughout the country. Gangsters-cum-businessmen (called chao poh) controlled certain local areas and ran such businesses as construction and real estate development [Yoshihara 1994: 182187]. The Thai institutions to protect property rights were not as good as the Malaysian. Thailand, however, more than compensated for it with greater economic freedom. What handicapped Malaysian economic growth is New Economic Policy (NEP), which started in the early 1970s. Under NEP, the economic freedom of Malaysian Chinese and British investors who had dominated business until then became more restricted in order to create more opportunities for Bumiputras (mostly Malays). If it had reduced the growth potential of the country only temporarily, its negative effect on the economy would not have been too serious, but it turned out to be long-term. This is because it is taking a long time to put Bumiputra businessmen on the same basis as Chinese. In the meantime, NEP has created many rent seekers. Thailand did not have much trouble with the problem of

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ethnicity. It could have become amore serious problem in the 1950s and possibly 1960s if Thai nationalists had been given a chance to make it a political issue, but they did not have such a chance since the government was controlled by the military which needed economic growth for its legitimacy. By the time democracy had started in the mid 1970s (but was not firmly established until the early 1990s), most of the young Chinese having been integrated to Thai society, the Chinese had ceased to be a politically explosive issue. So, there was no political need to distinguish Chinese and Thai and restrict the economic freedom of the former to strengthen the economic position of the latter, as happened in Malaysia. Furthermore, Thailand was not very restrictive on other types of economic freedom, such as the freedom for foreign companies to invest. In general, one can say that Thailands relatively fast economic growth has been due largely to a relatively free business environment.

4.0

RELATIONSHIP WITH ANOTHER COUNTRY

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The expansion of Thailands economic relations with the world market, in particular the expansion of trade and investment, has been a key factor for the country. This section provides an overview of Thailands economic relations with major countries and geographic regions. Detailed information and analysis is provided on important global economic trends, specific export and import trends for each geographic region, and both foreign direct investment and Thai investment for each geographic region.

4.1

Export and Import Industry

Thailands overall trade activity has accelerated since the mid-1980s when the countrys policy makers made a conscious decision to move from import-substitution policies to export led growth. Figure 2 indicates the pace at which Thailands trade with the rest of the world has expanded, except for imports after the financial crisis in 1997. Thailand has registered a trade deficit every year since 1987, however, the bulk of its imports have been used in productive investment.

Figure 3: Import and export flow between Thailand and Africa

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Thailand has been extremely successful in expanding its exports, with growth rates between 14 percent and 28 percent per year from 1990 until 1998. Compared to the structure of exports in the 1970s or even the 1980s, the structure of Thailands exports in the 1990s has clearly diversified into a wide variety of products. Figure 3 contains Thailands top exports and the growth trend of these products over the past three years. In 1998, aggregate export growth increased significantly, with the exception of rubber. Exports continued to be the main factor preventing the Thai economy from contracting. In 1998, export volume grew by 8.1 percent during the first half of the year. Exports which showed substantial volume increase were manufacturing exports using high technology, including electronics and automobile products, and agricultural exports, such as rice and canned fish. Nevertheless, total export value decreased by 6.8 percent, resulting from the slowdown of the world economy and financial crises in Asian countries. The 22

value decline was caused mainly by the 13.8 percent reduction in export prices following intense price competition among Thailands major competitors, whose currencies also depreciated substantially, while the export volume increased at a lower rate than in the previous year. Some investors in Thailand will be tempted away by investment incentives and cheap labour in neighbouring countries such as China, Vietnam and Indonesia, which will lead to further stagnation of Thai exports. Skilled, but relatively low cost, labour gave impetus to exports such as garments, footwear, jewellery, integrated circuit boards and other electronic products, including hard disk drives and keyboards. These industrial sectors have received rapid increases in foreign direct investment and domestic capital accumulation. It is unclear which of these industries will remain competitive into the future as new competitors have emerged. These countries, with their large domestic markets, are receptive to foreign investors. There are reasons to be optimistic about Thailands export outlook. The private sector is forward looking and a number of firms are already in the process of upgrading. Thailands natural resource advantages will ensure the longevity of the jewellery industry and agricultural sector. The downstream move into the processing industries for freezing and canning has led to a rise in exports of processed foods such as canned tuna fish and chilled or frozen shrimp. And some firms in the computer industry are using cutting-edge production processes. These are only examples of the dynamism of Thailands private sector. 4.2 Foreign Direct Investment

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Despite significant improvement in domestic saving mobilization, the gap between saving and investment in Thailand still exists. The sufficient capital formation is necessary to finance Thailands economic growth. The share of FDI in total foreign capital inflows in 1980s was 20 percent and declined to 10 percent during 1990s. After the baht was floated in 1997 until the present, FDI has become increasingly important source for investment until the share of FDI in total foreign inflows surges to 40 percent. However, the FDI inflow has been consistently increasing, the net flow of FDI has been fluctuating from year to year due to the uncertainty of Thai economy and external factors. 1980-1989 In the first half of the 1980s, the flow of FDI in Thailand was relatively small and fluctuated dramatically because of instability in both domestic and world economies. The flow of FDI in Thailand started to expand at an exceptional extent after 1987 in accordance with the rise in labor costs and the appreciation of the currencies of Japan and the Asian NIEs. That brought about relocating their production bases to Thailand and other developing countries. During this period, the share of FDI from Japan in Thailand increased sharply from 33 percent in 1986 to 48 percent in 1988. 1990-1996 The flow of FDI started to decline at the beginning of 1990s due to the consequences of the production base adjustment by Japan and the NIEs and the insufficient in human resources and infrastructure. The trend of FDI inflows had been influenced by the business cycle in Japan. FDI from Japan was leveled at only 8 percent

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due to the uncertain economic situation in 1992. Note that FDI inflows from Japan were approximately 16 percent during 1990-1996. 1997-2001 From 1997 to 2001, annual flows of FDI into Thailand averaged U.S. $ 6.5 billion a year. After the baht was floated and financial crisis erupted in 1997, FDI inflows to Thailand had increased in a great extent. That was largely attributed to a surge of problem companies seeking takeover partners. With 38 percent depreciation of the baht, that bought about increasing in purchasing power of foreign investors and encouraged acquisition. In 1997, the stream of FDI into Thailand has dominated by Japan (28 percent), followed the U.S. (18 percent), Singapore (18 percent), Hong Kong (12 percent), the EU (12 percent), and Taiwan (5 percent). FDI inflows from the U.S. had declined during this period in accordance with the economic boom in China. Note that FDI inflows primarily came into the industrial sector accounted for an average 50 percent per year of the total FDI (e.g., electrical appliances, machinery & transport equipment, and metal & non-metallic), and the trade sector accounted for an average 25 percent per year of the total FDI. 2002 to Present From 2002 to the present, the flow of FDI has been consistently increasing to an average $ 7.5 billion a year in accordance with the economic recovery. Interestingly, the flow of FDI into Thailand has been dominated by Singapore instead. In 2004, 41 percent of the total FDI came from Singapore, followed by Japan (20 percent), the EU (13 percent), and the U.S. (9 percent). Most FDI are mostly channeled into the trade sector and the industrial sector. For the industrial sector, the inflow of FDI in the electrical appliance has been declining while those in other industry sectors are relatively stable. By 2006, an

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upward trend of FDI inflows is expected so as to finance the government mega-projects and to keep the balance of payment in a good shape.

4.3

Competitiveness of the Economy

Policies to Attract FDI (Tax Incentives and Special Privileges) Over the past two decades, the Thai Government has been actively promoting the country as investment locations to attract scarce private capital and associated technology and managerial skills so as to help achieve the development goals (modernization) by means of liberalizing the laws and regulations for the admission, establishing of foreign investment projects, and providing guarantees for repatriation of investment and profits. Tax incentives are also part of these efforts by reducing the tax burden of enterprises in order to induce them to invest in particular projects or activities. As a result, the Thai government has increasingly adopted measures to facilitate the entry of foreign direct investment (FDI) through the statutory tax rate and the special privilege granted by the Board of Investment (BOI). A. Statutory Tax Rates (1) Corporate Income Tax The standard company tax rate in Thailand is now 30 percent of net profits, which is relatively high compared to those in Asian countries (see Table 6).

Table 6: The Statutory Tax Rates on Corporation in Asian Nations.

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(2) Withholding Taxes Foreign companies are required to pay withholding tax on dividend, interest and royalty at the rate of 10 percent. There is no withholding tax on interest paid to non-resident individuals or companies not carrying on business in Thailand on deposits or loans derived from operators of the Bangkok International Banking Facilities (BIBF) solely for the purpose of extending loans in a foreign country. A rate of 10 percent applies to interest paid to non-resident individuals or companies not carrying on business in Thailand on deposits or loans derived from operators of the BIBF for extending loans in Thailand (see Table 7). Table 7: Withholding Taxes

5.0

CONCLUSION

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This study is to investigate the economic system and the major elements of this study are the degree of government control and oversight of the economy, level of taxation, the power and influence of unions. Moreover, this paper consist how far the openness of the economy to the outside world. With regards to the domestic-specific sector, the tax incentive is insensitive to investment decisions. With 48 percent of total FDI, the effective tax rate on trade firms (26 percent), for example, indicates that the tax incentive is not a key factor on investment decisions, but the specific location or the domestic market. More than that, this study is focus on the comparative study between Thailand and Malaysias Economy.

BIBLIOGRAPHY A Guide to Thai Taxation (2005). Bangkok: Fiscal Policy Office.

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Dunning, J.H. 2000, Reforms, Globalisation and Knowledge Based Economy, Oxford University Press, Oxford FDI Inflows: 1980-2004. [Electronic database]. (2005). Bangkok: The Bank of Thailand. Fletcher, K. (2002). Tax Incentives in Cambodia, Lao PFR, and Vietnam. Washington, DC: International Monetary Fund. Library of Congress [Electronic database]. (July 2007). Federal Research Division Country Profile: Thailand Masron & Shahbudin (July 2010). Push Factors of Outward FDI: Evidence from Malaysia and Thailand. Journal of Business & Policy Research 5(1), 54 68 Pavida, P. 2001. The making of Thai Multinationals: A comparative study of Thailands CP and Siam Cement Groups,. Journal of Asian Business, 17(3), 41 70. Rolfe, R. J., Rick, D., Pointer, M., & MaCarthy, M. (1993). Determinants of FDI Incentive Preference of MNEs. Journal of International Business Studies 24(2), 335-356. Tax revenue in Thailand [Electronic database]. (2005). Bangkok: Fiscal Policy Office. UNCTAD 2006. World Investment Report 2006 - FDI from Developing and Transition Economies: Implications for Development. United Nations: New York & Geneva. Yoshihara, Kunio. 1994. The Nation and Economic Growth: The Philippines and Thailand. Kuala Lumpur: Oxford University Press.

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