As the world economy is shifting towards more diverse online and offline platforms, MNCs are now moving out of survival mode and focussing once more on growth and opportunities.

As a result, the government is looking at ways of changing the long-established principles governing law and taxation.

Businesses need to understand their tax risks and adopt the right strategies to manage their tax costs, and crucially need to be aware of potential changes and their impact as well as how to manage disruption to business models, and harness opportunities.

 For example, risks arising from acquisitions, costs recharged to overseas subsidiaries, or transfer pricing between related parties will become more challenging and may be scrutinised by the tax authorities. Companies need to know and be prepared to adopt the right strategies to manage their tax cost and the risk that may be incurred.

On Friday, October 19, the MSV event will discuss all of these issues of which the following are the key areas that will be examined:

Most MNCs nowadays are contemplating boosting their growth potential by expanding their footprints locally and overseas through acquisitions and into cyberspace.

In order to achieve strategic objectives through acquisitions, it’s vital that MNCs are able to identify and effectively manage the key tax and legal challenges arising from acquisitions, deal executions and post-deal integration as well as how to manage risks amid the planning opportunities available to maximise their business and shareholder value.

Activities of MNCs may also create challenges for their tax operations as a result of changes in the business environment.

One key concern would be payments to related parties, since it’s one of the simplest ways of shifting profits out of a company. This is a very common technique used in tax planning.

Favourite target

However, MNCs need to be aware that these payments are a favourite target of the Revenue Department and their deductibility for corporate income tax will also be challenged. Compliance with the withholding tax and VAT laws will also be closely scrutinised.

These kinds of issues can lead to unavoidable tax exposures if wrongly determined. Now is the time to revise tax operations and discover previously hidden risks.

Furthermore, on 27 September 2018, the National Legislative Assembly passed the Revenue Code Amendment Act to introduce transfer pricing provisions. It’s expected that the law will soon be announced in the Royal Gazette for its official enactment.

Key issues in the new law will include, but are not limited to, the transfer pricing disclosures of related party transactions, minimum income thresholds and penalties for non-compliance.

So, there are notable points in the transfer pricing provisions where companies need to become ready for the impending scrutiny of the Revenue Department.

Apart from the above, another key issue that needs to be addressed is legal compliance which is a significant matter for government authorities. When conducting business, it might be sceptical whether business operators are fully compliant with the laws, such as the foreign business law, the investment promotion law, etc.

The risk of non-compliance could lead to legal sanctions and in the worst-case scenario, business disruption or even cessation.

Furthermore, the nature of business is now changing from the traditional to online, so handling this switch properly can lead to tremendous growth.

New technology leads to digital transformation and a huge increase in online transactions, prompting the government to impose new laws and measures to monitor any fast-growing businesses.

Therefore, companies need to study and understand those laws and regulations and the related practices concerning e-commerce or the disclosure of personal data and others. Managing legal risk is vital to the success of business performance. Companies need to be more aware of legal non-compliance issues so that proper controls can be put into place to increase the standard of business compliance and to prevent internal fraud.

Our speakers will share their valuable insights into these issues and other current business trends. We hope you’ll find our conference invaluable and we look forward to seeing you there.

Contributed by ORAWAN PHANITPOJJAMARN, an Associate Partner for Legal and Tax services at PwC Thailand

Among other media, magazines saw the highest decline in ad spending in September this year, down 33.13 per cent year on year to about Bt111 million.

Ad spending in newspapers also dropped significantly by 19.09 per cent to about Bt500 million. Cable and satellite televisions also posted a year-on-year drop in ad spending by 16.45 per cent, declining to Bt193 million.

Ad spending on televisions declined by 0.30 per cent to Bt5.65 billion and ad spending on radio dropped by 5.85 per cent to about Bt402 million.

Ad expenditure on transit media dropped 4.14 per cent year on year to Bt486 million, but was up by 1.19 per cent to Bt83 million for in-store media.

Meanwhile, ad spending on the Internet saw the highest growth year on year in September at 9.02 per cent, rising to Bt133 million. Ad expenditure on cinema grew 6.77 per cent year on year to Bt505 million, and was up by 3.80 per cent to Bt601 million for outdoor media.

Total ad expenditure in the first nine months of this year dropped by 0.67 per cent compared to the same period of last year, to about Bt78.34 billion, according to the survey.

Magazines and newspapers are the worst-hit media, with ad spending year-on-year down by 35.37 per cent and 22.71 per cent respectively in the first nine months of this year.

Ad spending on cable and satellite televisions also dropped significantly by 21.03 per cent year on year in the first nine months of this year. Also, ad spending on transit media declined by 2.34 per cent.

Outdoor media, however, bucked the trend, enjoying the highest increase in ad spending, by 7.96 per cent year on year in the first nine months of this year, followed by cinema, which saw ad spending increase by 6.40 per cent.

Ad spending on in-store media increased by 5.28 per cent, while it rose 2.84 per cent on the Internet. Ad spending on televisions also increased by 2.18 per cent and increased by 1.97 per cent on radio.

At the same time, the crowding-in effect of government infrastructure projects should continue to buoy private investment.

External contribution is projected to moderate but remain healthy overall. Tourism sector should remain a key economic driver thanks to steady climb in Chinese tourists. Export of goods, however, is expected to decelerate amid softening of the global economy. All considered, we estimate +4.2 per cent year on year growth for the Thai economy next year, edging down from the +4.4 per cent for fiscal year 2018.

More broad-based consumption and solid private investment

Private consumption has recovered this year thanks to the automobile sector which showed solid year on year expansion. For FY2019, we expect automobile contribution to fade as domestic car sales normalise. However, consumption of non-durable goods, which are more reflective of grass roots economy, is expected to rise and offset weakness in durable goods consumption.

This is based on pre-election stimulus packages coupled with gradual improvement in farm income.

At the same time, the private sector is expected to get a boost from successful conclusion of new elections. Moreover, scaling up of infrastructure-based public investment should lift investor confidence and spur private investment.

External sector to stay robust, albeit at slightly lower growth rates

After being the key GDP driver over the past few years, merchandise exports is expected to moderate as global economic growth slows next year. Furthermore, many emerging markets, particularly in Asean, which has been widening its share of Thai exports, have recently suffered rapid currency depreciation. This weakening could curtail future demand for Thai exports.

We remain upbeat on tourism growth, which we forecast to remain strong and help the external sector maintain its robust performance. Chinese tourists will remain the key driver, backed by the country’s vast room for growth in number of passport holders and Thailand’s position as the top destination for Chinese tourists.

Our view is further supported by a Nielsen survey from 2017 which indicated that uniqueness of tourist attractions – the key strength of Thai tourism – is the priority for Chinese tourists.

Expect MPC to hike rate once in FY2019F amid low headline inflation

Headline inflation should stay subdued and close to the lower bound of the inflation target next year. Backed by improvement in domestic demand, consumption is expected to gradually increase and become more broad-based. This in mind, we project headline and core inflation to rise only modestly to +1.3 per cent YoY and +0.9 per cent YoY, respectively.

Current account should remain healthy on steady rise in inbound tourists but might scale down overall due to decline in merchandise trade surplus. Thanks to its more robust external stability compared to peers, we expect the Thai baht to slightly depreciate to an average of Bt33 per USD.

Against a backdrop of solid domestic and external stability, we expect the MPC to hike rates once next year to create policy space to cope with future risk.

Risks to outlook are tilted to the downside

We flag some key downside risks to our relatively robust growth projections. These include:

Political stability

After receiving royal endorsement, the organic laws on the selection of senators and election of MPs are now slated to be promulgated in Sept and Dec, respectively. Thus, election should take place in Jan-May 2019. However, we are still cautious about the political situation as there remain significant uncertainties. One is possibility of further election delay, which could lead to re-emergence of political turmoil. Another issue is that even with an on-schedule election, there is potential for the new electoral system to produce a weak coalition government.

Escalating trade protectionism

Regarding externals, escalation of trade protectionism is the key risk for our outlook. Although direct impact on Thailand from the trade spat is expected to be small, rising conflict can undermine the global outlook and impact demand for both exports of goods and services, subsequently dimming economic growth prospects.

Contributed by Mana Nimitvanich, Head Of Economics at Tisco Economic Strategy Unit. He can be reached via http://www.tiscowealth.com

Somkid, citing the potential cost burden on workers such as taxi drivers and taxi motorcyclists, was speaking as he delivered policies to state-owned PTT and urged that the relief measures come out within three months.

He also asked PTT to help stabilise the country’s energy security amid a trend of rising global oil prices. He said the energy-related parties would jointly finish drawing up this plan within the targeted timeframe, and that the measures would not exert pressures on PTT’s business costs.

The Deputy Prime Minister said that, although severe impacts from the rising oil prices were yet to be felt, the government was acting prudently in taking a pre-emptive approach to help cushion low-income earners if their predicament worsened.

Somkid also asked that PTT and other companies join with the Industry Ministry to develop plans to bring to fruition the bio-economy, which would boost farm product prices. Energy Minister Siri Jirapongphan said that the ministry would seek collaboration with retail oil traders to find ways to mitigate the impacts of the rising oil prices.

In the initial stage, it is envisaged that taxi motorcyclists will be given a discount of Bt3 per litre when filling with 95 gasohol. They will be subsidised by the Oil Fund at a programme cost of Bt300 million for six months or Bt600 million for a year.

An examination of this measure will be finished in December. The subsidy will target around 300,000 taxi motorcyclists nationwide who are registered with the Department of Land Transport.

As part of the move, the Energy Ministry has sought the cooperation of retail petrol stations, which would give the discounts to the taxi motorcyclists at Bt1 per litre, while the Oil Fund will contribute Bt2 a litre.

The Energy Policy Administrative Committee yesterday also resolved to use the Oil Fund to subsidise the diesel price at no more than Bt1 per litre in order to keep the price below Bt30 per litre.

Siri said after the committee meeting that he is confident that the measure could keep the diesel price in check for the next nine months, given that the Dubai crude oil price has fallen below US$80 a barrel.

If the Dubai crude price were to rise to US$85 per barrel, or within the range of US$82.50 to US$87.5, the Oil Fund would subsidise the diesel price at a rate not exceeding Bt1.50 per litre. This action would contain the diesel price at no more than Bt30 a litre for the next six months, Siri said.

The goal of the Energy Ministry is to ward off the impacts of the rising crude oil price until at least March. However, the ministry has no policy to make the Oil Fund go into deficit, he added.

The ministry will continue to peg the retail price of cooking gas for household use at Bt363 for a 15-kilogramme-cyliner until next March.

As of yesterday the Oil Fund has a budget of Bt24.592 billion.

Theeraj Athanavanich, public debt adviser in the ministry’s Public Debt Management Office (PDMO), said that the office will study these external sources of financing for the government, given the likelihood of the rising trend for domestic interest rates, in an effort to head off the risks to Thailand’s liquidity position.

“We’ve been asked by the Finance Minister to study sources of funds, particularly for long-term projects,” he said. “We may have to examine the costs of borrowings from abroad, possibly from the ADB (Asian Development Bank), the World Bank or Jica (Japan International Cooperation Agency). Next year, we plan to make domestic borrowings as the cost remains low at less than 3 per cent.”

Thailand’s external public debt remains very low, with yen-denominated borrowings of about 50-60 billion yen. The foreign exchange risk on this debt is expected to be closed this year through local refinancing.

This means there is room to make more external borrowings by the government, Theeraj said.

With the US Federal Reserve expected to keep raising its benchmark Fed Funds rate, the Bank of Thailand has been looking for the right timing to raise its policy rate, he said.

However, the PDMO does not believe that now is the right time for the Thai central bank to act, as some sectors of the economy remain fragile in spite of the country’s overall satisfactory economic growth, he said.

Last year, capital movements presented challenges to PDMO’s debt management but, given Thailand’s luck of late, there have been more capital inflows than outflows compared with the trend in a number of other emerging-market countries, Theeraj said. This situation reflects Thailand’s strong economy.

Next year will see more capital movements, serving up more challenges to the debt management office in light of other countries’ monetary policies, he said.

Since 2014, the government has made borrowings for Thailand’s development and infrastructure investment and, despite the higher public debt, the country’s gross domestic product (GDP) has increased.

In 2014, GDP was Bt12.06 trillion, with public debt of Bt5.69 trillion – 43.3 per cent of the nation’s GDP. This year, GDP has increased by about Bt4 trillion to Bt16 trillion and the public debt has risen to Bt6.67 trillion, equating to 41.32 per cent of GDP.

“We don’t want (people) to focus on how much the public debt has risen or declined. But we want (people) to look at the debt quality. Whether the debt has been used for the economy,” Theeraj said.

“This government’s borrowings have been made for investment in the country’s infrastructure for future income generation.”

This government has set the budget deficit continuously, but the deficit has been used more for the country’s investment, he said.

The government’s investment budget to total budget is below 22 per cent for fiscal 2018, while the budget deficit is about 1-2 per cent – within the frameworks of the International Monetary Fund and the World Bank.

Thailand had a budget deficit of Bt250 billion and an investment budget of Bt440 billion in fiscal 2014. The following fiscal year, the budget deficit was still Bt250 billion but the investment budget rose to Bt450 billion.

Paiboon Nalinthrangkurn, Fetco chairman, said the federation has discussed with seven members and agreed not to ask the Ministry of Finance to extend the LTF programme which will expire at the end of 2019.

Instead, Fetco will propose to set up new type of funds to replace LTFs which are very popular among income earners with tax saving strategy, in order to promote long-term investment and lessen market volatility in the future.

The discussion is intended to reach finalisation within the term of this government. If not, there must be an exit strategy for LTF investment to gradually flow out of the Thai stock market, Paiboon said.

Presently, the pattern of the fund has been discussed for more benefits to the middle and low-income earners, rather than high-income earners, so that the former group will be able to make long-term investment in the Thai stock market for good returns and sufficient fund for retirement, he said.

Bt50 bn in LTFs, RMFs to enter SET in Q4

About Bt50 billion worth of long term equity funds (LTFs) and retirement mutual funds (RMFs) are expected to pour into Thai stock market in the last quarter of this year as Thai stocks have made smaller corrections than those in other countries due to strong fundamentals, said Tisco Securities yesterday.

Viwat Techapoonphol, deputy managing director and head of technical analysis of Tisco Securities, said that currently almost all stock markets across the world have dropped as US’ 10-year bond yield has climbed to 3.23 per cent, a seven-year high in light of good US economic indicators.

“Tisco Securities expect the SET Index (the Stock Exchange of Thailand Index) not to drop below 1,670 points due to Bt35-billion LTF and Bt15-billion RMF support expected in the fourth quarter of this year,” he said.

Now, foreign holding of Thai shares stays at a record low since 2007. In five years and nine months (until August 2018), foreign investors were net sellers of Thai stocks worth about Bt550 billion.

FORD THAILAND

New Everest, Ranger provide extra push

Ford Thailand’s sales momentum was given a boost in the third quarter with the consecutive launches of the new Everest and new Ranger, as well as the first-ever Ranger Raptor, which all arrived in Ford dealerships in mid-July.

The company has announced that its third quarter sales jumped 21 per cent year-over-year to 16,930 vehicles.

Sales of the segment-defining Ranger jumped 28 per cent for the July-September period to 13,960 vehicles. This added 0.8 of a percentage point to Ranger’s third quarter share versus a year ago to 13.0 per cent, including a monthly high of 13.6 per cent in September. Year-to-date Ranger sales have increased 33 per cent to 41,451 vehicles.

The new Ranger lineup in Thailand consists of 20 different models, including the Raptor, Wildtrak, XLT, XLS and XL variants, and the new ‘Limited’, or LTD, variant.

The Everest mid-size SUV contributed to Ford’s third quarter total with sales increasing 35 per cent from a year ago to 2,909 vehicles, helping drive its segment share up 0.7 percentage point from a year ago to 18.1 per cent.