The two countries are not the only ones in the region competing for foreign investment amid a global slowdown. At the beginning of this month, Indonesia announced plans to cut its corporate tax from 25 per cent to 20 per cent starting in 2021, and for a time-limited rate of 17 per cent for companies listing shares. It has also vowed to carry out an overhaul of the value-added tax, income tax and general taxation.

Kobsak said Thailand’s tax incentives were now “not less than” Vietnam’s, but he admitted that the country was still playing catch-up when it came to free-trade agreements.

Thailand’s current level of corporate income tax is 20 per cent – the same as in Vietnam – and it already offers firms in its Eastern Economic Corridor, a special economic zone, sweeteners such as tax exemptions for their first 13 years and 50 per cent reductions for the next five years.

However, under the new package, investment projects worth at least 1 billion baht (US$32.6 million) would be granted a further five years of 50 per cent reductions. The deal is subject to the proviso that firms make the investment by December 2021.

Science and technology firms would also be able to make tax deductions on training and hiring expenses and firms investing in automation would be granted a range of additional deductions.

Such measures are aimed at competing with sweeteners in Vietnam, where targeted firms are offered a variety of tax breaks, including exemptions of up to four years, 50 per cent reductions for nine years and a special 10 per cent rate for 15 years. Even more generous perks are offered to those companies Hanoi is most eager to attract.

Thailand also had the advantage of being a hub linking the countries of Southeast Asia, he said.

NOT ENOUGH?

Still, some analysts questioned whether Thailand Plus was enough to make a dent in the lead of Vietnam, which has already tempted many Chinese firms seeking shelter from US tariffs to relocate, thanks to a combination of low labour costs and plentiful manpower.

Nonarit Bisonyabut, a senior fellow at the Thailand Development Research Institute, said Thailand Plus would benefit hi-tech firms in such sectors as aviation maintenance, warehousing and logistics, but it might not be enough to lure international companies seeking a manufacturing base in Southeast Asia.

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“Vietnam’s labour costs are relatively cheaper and there is a bigger labour supply compared to Thailand. But Thailand’s advantage lies in its strategic location in the centre of the CLMV [Cambodia, Laos, Myanmar and Vietnam] countries.”

Siwat Luangsomboon, an economics analyst at Kasikorn Research Centre, agreed that Thailand’s comparatively high labour costs meant the tax breaks might not be enough to lure investors away from Vietnam.

“Many of the foreign companies the package targets are in labour-intensive manufacturing. Companies that have already set up manufacturing bases in Thailand like Sony or Delta Electronics will find the package helps them expand … but it might not be enough for other companies which have not decided [where to move their base to].”

Others were more upbeat about the plan. Jareeporn Jarukornsakul, the group chief executive of WHA Corporation, which manages 10 industrial estates in Thailand, said Thailand Plus offered a timely opportunity to [companies looking to] benefit from the trade-war fallout.

She said while the Thai economy had slowed due to the country’s election earlier this year, the policy now represented “the government’s clear [economic] direction”.

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“In the past two years, investors from mainland China and Taiwan have expressed high interest in investing in Thailand as they expand and face rising costs [at home],” Jareeporn said.

“The trade war is a catalyst for Chinese investors and investors from other countries who operate in China to find a new location.”

Last month, WHA signed a deal with Golden Egret Cement Carbide, a subsidiary of Chinese state-owned Xiamen Golden Egret Special Alloy, for a land purchase and three-year lease of a ready-built factory as part of a 2.5 billion baht investment from the manufacturer of tungsten powder, cemented carbide and cutting tools over the next three to four years.

“The company is leasing the manufacturing plant while it waits for its plant in Thailand to be built,” Jareeporn said. “They cannot afford to suspend their exports to countries like the US.”

She said Chinese firms in the electronic, automotive and consumer product sectors had all expressed an interest in moving their production bases to Thailand, adding that the country’s infrastructure and human resources meant it stands apart from Vietnam, Cambodia and Myanmar, which all rely on cheaper labour costs to attract investment.

While some analysts hope Thailand Plus can boost annual GDP growth beyond 3 per cent – over the past two quarters it slowed to 2.8 per cent and 2.3 per cent, the slowest rate of growth in five years – Jareeporn said any boost might not be visible in the short term.

She noted that land purchases usually took between three and six months. “Foreign firms also have to wait for approval from the Board of Investment and [moving funds internationally] can take time.”

Thailand missed its value-added tax (VAT) target in June and July, with revenue shrinking 5.6 per cent and 9.1 per cent respectively. The revenue department blamed the strong baht for lower VAT receipts from imported goods. ■

With additional reporting by Reuters and Bloomberg