“We expect that GDP growth in 2019 will be in the high 3s or low 4s,” said Pipat Luengnaruemitchai, assistant managing director, head of Private Wealth Management Research at Phatra Securities Plc, referring to the economy’s performance by percentage.

Pipat was addressing the Kingdom’s economic outlook in 2019 at a press event held by Kiatnakin Bank on Wednesday night.

Matthew Circosta, an analyst for Moody’s Investors Service (Singapore), said at a separate event: “We expect the Thai economy’s GDP growth to be at 4 per cent this year. However, 2019 will experience slower growth, with predicted GDP growth of 3.7 per cent, and 3.5 per cent in 2020.”

Pipat said: “The reason why we can expect slower growth in 2019 is because tourism and exports, the key drivers of the Thai economy, have been weakening.”

Tourism in the Kingdom has been declining at an alarming rate. In August, 867,000 visited the country, down 11.77 per cent month on month. In September, only 648,000 Chinese tourists came, marking an even steeper 14.89 per cent fall month on month, according to the Joint Standing Committee on Commerce, Industry and Banking (JSCCIB).

“Tourism accounts for up to 15 per cent of Thailand’s GDP,” Pipat said. “If tourism stops growing, the country’s GDP will take a direct hit, as seen in the third quarter of this year where a decline in tourism led to a GDP growth rate reduction from 4.9 per cent in the first quarter to only 3.3 per cent.”

On the export front, there have been signs of decline.

In September, the value of exports shrank 5.2 per cent year on year to US$20.699 billion and imports rose 9.9 per cent to $20.212 billion, yielding a trade surplus of $487 million for the month. However, exports did start to recover in October, growing by 8.7 per cent month on month, according to Pimchanok Vonkorpon, director-general of the ministry’s Trade Policy and Strategy Office.

Pipat said: “We expect exports to only grow by 5 to 6 per cent in 2019. This is mainly because of the shifting supply chains as a result of the ongoing trade war.”

Circosta chimed in by saying the US-China trade war is by far the biggest contributor to the decline in exports”. “The trade war is causing a disruption within the global supply chain, of which Thailand is a part. The Thai exports which have been hit the hardest are computer parts and electronics,” he said.

Exports of computer parts and circuits to China fell by 18.4 per cent in October, according to the Ministry of Commerce.

Also, shareholders generally view that all their investments, including capital increases, should be regarded as their costs of investment when computing realised gain or loss from that investment. And if the investment results in a loss, that loss should be allowed as a deductible expense because it’s a real cash investment that they’ve made while running the business, and that loss could happen because of market circumstances.

However, the understanding outlined above may not be unconditionally applied to all cases.

In Supreme Court judgments, there have been cases where a capital increase was ruled a concealed transaction, with shareholders disguising their true intention to provide subsidies, financial support or debt forgiveness. If this is the case, both the company that received the capital increase and the shareholders who made the additional capital investment could be exposed to the risk of a tax assessment.

 Normally, a business entrepreneur makes an investment decision in order to get profits and dividends from that investment. So, when the funds from a capital increase aren’t used to expand the business or make a new investment, but instead used to repay outstanding debts and improve liquidity, this is likely to make the true intention of the capital increase unclear and can trigger tax risk.

When the taxpayer is unable to provide sufficient evidence to prove it intends to run and obtain profits from the business, cash that the company receives from a capital increase would be assessed as a subsidy which the company should include as its taxable income.

This happened in Supreme Court case no 5812/2557, where the capital was increased with a premium before the company dissolved the business and the capital used to repay bank loans.

In that case, the court was unconvinced that the capital was increased to carry on the business and obtain profits, and ruled that the capital increase was actually a concealed transaction for the shareholders to give a subsidy to the company.

Moreover, when the capital increase is attacked as a concealed transaction, the shareholders are not allowed to include capital increase as its cost of investment (cost per share). So, the gain or loss from the disposal of those shares would be reassessed as if the capital increase had not taken place. This kind of assessment actually occurred in Supreme Court case no 9144/2560.

Several issues and evidence were brought into the analysis before the court finally concluded that the capital increase was actually a concealed transaction. This should not be misinterpreted as meaning that capital increase for improving liquidity and repaying outstanding debts would be regarded as a taxable item, but rather the management should view the above cases as an alert to the potential tax risks and be more prudent when undertaking its transactions.

Sometimes a capital increase for repaying outstanding debts may be driven by commercial reasons. One example is to prevent the company from going bankrupt and to improve liquidity and increase working capital while new business opportunities are being sought. In this scenario, supporting evidence will play an important role to help manage tax risk.

Both shareholders and the company should have evidence to show and support the reason for the capital increase that is raised to run the business and look for profits. So documents, such as a new market analysis, the business plan, etc, should be properly maintained. Lastly, the company’s actual actions are also equally important because they |must be consistent with the business plan.

This article was submitted by ORAWAN FONGASIRA, partner and NOPAJAREE WATTANA-NUKIT, director, PwC Tax & Legal, Thailand.

Anusorn Tamajai, dean of Rangsit University’s Economics Faculty, said the year-end shopping scheme is just a marketing strategy to please middle-class consumers.

“It is marketing. I don’t think it will do much to boost overall consumer spending,” he said.

The government should instead focus on boosting the income of people, most of whom are already teetering under high debts, he argued.

He made the comment after Finance Minister Apisak Tantivorawong announced that he would submit a shopping-tax allowance proposal to the Cabinet on December 4. The break will cover three groups of products, with a Bt15,000 cap on the maximum eligible purchase amount.

Apisak said the allowance would cover tyres made in Thailand, as the government wants to help rubber farmers who have suffered from low prices for latex and rubber sheets. To qualify, tyre manufacturers must use local rubber as the raw material, he said.

The second group is community-based products, such as those sold under the One Tambon One Product (OTOP) brand, reflecting the government’s desire to help small local producers by encouraging shoppers to buy the products as gifts during the New Year season.

The third group covers books, e-books and related products with the aim of promoting reading.

Shoppers must make purchases between December 15 and January 15 to qualify.

Those who buy the products during this period will be eligible for a tax allowance when they file their personal income tax returns next year, but those who make purchases in the first two weeks of January will be eligible to claim the tax allowance in 2020.

More details will be available after the Finance Ministry submits its proposal on tax allowances for shopping to the Cabinet on December 4, he said.

This year’s shopping tax allowance is different from the allowances offered in previous years, as the government is satisfied with the increase in consumer spending and so has limited the range of products covered. Anusorn said buying tyres was unlikely to raise the price of rubber products and so will have a minimal impact. People do not change car tyres often, he pointed out. However, he agreed that offering tax incentives to boost the sale of OTOP products will indeed benefit small local producers. He also agreed with a tax allowance to promote reading, as publishing houses that have suffered from disruptive technology may benefit from the scheme.

In a related development, October’s economic indicators suggested an economic rebound from a slower growth in September, the Finance Ministry said.

Pornchai Theeravej, finance and economics adviser to the Fiscal Policy Office, said yesterday the economy in October was driven mainly by consumption and private investment. The value-added tax (VAT) collection rose 7.1 per cent year on year, the highest growth rate over the past three months. The VAT revenue is an indicator of the rise or fall in household spending.

Car sales rose 14.1 per cent, as consumers had increased confidence of their future incomes. Registration of new motorcycles rose slightly at 1.9 per cent, suggesting farmers and low-income groups were cautious of spending. Farmers had more income due to an increase in production, he said. Sales of commercial vehicles rose 36 per cent, the highest growth rate in 70 months, indicating rising private investment.

Sales of cement rose 13.8 per cent, the highest in 65 months, suggesting robust activity in the construction sector. Exports had turned to grow at 8.7 per cent in dollar terms after contracting 5.2 per cent in September.

The number of tourists dropped by 0.5 per cent to 2.71 million, due mainly to a sharp drop in Chinese tourists, though revenue from tourist spending did show a 0.7 per cent increase in October to Bt141 billion.

Speaking last night, he said the allowance would cover tyres made in Thailand, as the government wants to help rubber farmers who have suffered from low prices for latex and rubber sheets. Tyre manufacturers must use local rubber as the raw materials, he said. The second group is community-based products, known as OTOP, and here too the government wants to help small local producers by encouraging shoppers to buy local products as gifts for friends and relatives during the New Year season. The third group covers books, e-books and related printing products with the aim of promoting reading.

Shoppers have to make purchases between December 15 and January 15.

Those who buy products this year will be eligible for a tax allowance when they file personal income tax returns next year, but those buy products early next year will be eligible for tax allowance in 2020.

More details will be available after the Finance Ministry submits its proposal on tax allowances for shopping to the Cabinet for approval on December 4, he said.

This year’s shopping tax allowance is different from that of previous years as the government is satisfied with the increase in consumer spending and thus limiting the range of products covered by the arrangement.

In particular, he said, the question of balancing these dimensions and creating mutual governance to guard the cyberspace will need attention, given that Asean is home to 650 million people and 370 million Internet users. Thailand’s population is close to 70 million with over 120 million mobile subscriptions, Prajin said.

He was speaking yesterday at the “International Cyberspace: The New Frontier of Peace and Cooperation” forum held by Asian Peace and Reconciliation Council (APRC) and the Electronic Transactions Development Agency (ETDA).

Prajin noted that cyberspace has become an essential part of people’s daily lives. Nations now rely on the interconnected nature and reliability of the Internet to drive economic development and continually improve citizens’ social and economic well-being. The Internet is an essential tool to propel the economy towards a “digital economy”, a phenomenon that has relatively recently become global.

“Thailand, as part of the global economy, first embarked on this digital transformation trend in 2016,” recalled Prajin. “We placed great importance on the ‘Digital Thailand’ and ‘Thailand 4.0’ initiatives, where we developed and put in place critical support infrastructures such as fibre-optic networks and country-wide Internet connectivity to provide citizens access to essential services and up-to-date knowledge.

“‘Net-pracharat’ is a great example of the government policy to provide Internet access nationwide. The Ministry of Digital Economy and Society, in conjunction with the National Broadcasting and Telecommunications Commission, brought digital access and digital opportunities to remote villages by installing fibre-optic cables in areas where telecommunications services had limited availability, or areas with no or low commercial potential,” Prajin said.

“We may be witnessing a steep rise in cybercrime, which is causing serious damage to critical infrastructure, institutions and society,” he said.

“I believe it is time for all of us to join hands and work together to protect the cyberspace and make it safe for everyone.”

He added that in terms of legislative measures, Thailand has been preparing a national legal foundation based on the Draft Personal Data Protection Bill and the Draft Cybersecurity Bill, in accordance with global agreements and measures.

“We expect that both bills be enacted very soon. I truly believe that securing cyberspace must be a collaborative effort by all parties. Thailand has recently been working on founding a committee to work on uplifting cybersecurity preparedness via intersectoral cooperation,” said Prajin.

His government believes Internet users should be aware of and responsible for protecting cyberspace. Thus digital literacy education is to be emphasised and hopefully extended to other regions as well, he said. As chair of Asean, Thailand will lead the bloc in formulating regional norms in cyberspace and promoting regional and international collaboration.

Said Surangkana Wayuparb, the ETDA chief executive: “Protecting cyberspace is not just about promoting the electronics industry, systems or information security, but also creating a reliable environment, connectivity, and data utilisation. We need to analyse and understand these dimensions, along with other crucial issues regarding cyberspace such as privacy and cybersecurity, which directly affects our users.”

The digital age is transforming all dimensions of people’s lives, said Professor Surakiart Sathirathai, APRC chairman and former deputy prime minister and former minister of Foreign Affairs of Thailand.

“Modern digital technology has arrived and been with us for quite some time now. In less than two decades, it has reshaped our lifestyles and our living patterns. It has changed the old definitions of the necessities of life such as housing, clothes, food and medicines, to now include smart phones.”