Bank Of Thailand Ponders Re-Imposing Tax Collections On Foreign Capital Influx

[george]

BoT ponders re-imposing tax collections on foreign capital influx

BANGKOK: -- The Bank of Thailand (BoT) is considering re-introducing imposing taxes on foreign capital inflows as an option in protecting the Thai currency, the baht, which has gained strength over the US dollar since the beginning of 2010, a senior BoT official said.

Wongwatoo Potirat, senior director of the BoT Financial Markets and Reserve Management Department, said the BoT formerly collected tax on foreign capital inflows in case they stayed in Thailand less than three months as the money was considered for speculative purposes rather than for actual investment.

Tax exemptions then were aimed at attracting foreign capital to the country, she said, adding that the measure could be re-introduced if the central bank found it necessary and believed it was unfair between foreign and Thai investors.

Ms Wongwatoo noted that the situation on foreign capital now has been changing rapidly and that the BoT closely monitors it regularly, but whether it would issue additional measures would depend on the situation.

The central bank is ready to implement measures it sees as necessary to contain heavy foreign capital influx if it is agreed by concerned agencies and the BoT, she said.

The Thai baht which has performed favourably against the greenback in the region since the beginning of this year was traded at Bt31.17-31.20 against the dollar late Friday.

Analysts expect that foreign capital will continue to flow into Asia due to higher returns on investment.

The current strengthening of the Thai baht has made the central bank concerned regarding small Thai exporters, especially those in the agricultural sector, or those using locally supplied raw materials on products made for exports, said Ms Wongwatoo.

She said a seminar will be held in the third week of October to provide knowledge to small exporters on foreign exchange and how to manage the baht.

BoT assistant governor Suchada Kirakul said there is a possibility that the baht would continue to move at this level or dip slightly in the future.

The BoT, said Mrs Suchada, is closely monitoring the movements of the baht against foreign currencies.

-- TNA 2010-09-05

[Thules]

Potentially not very good news.

Does anybody recall the rate of tax previously imposed, and was tthere a minimum threshold under which tax would not be imposed ?

[Boater]

If anything the thb needs to become weeker !

[virtualtraveller]

I'm no economist but money flows across borders by osmosis, it goes where it can earn the best returns, it's flowing into Thailand because Thailand is doing much better after the recession than the US or UK. It's six of one half a dozen of the other, you want stimulus and high economic growth, with low inflation, but you don't want the capital influx strengthening the baht too much. What to do?

And by the way, the baht is 25% up on the pound in the last 15 months, what could you do about that, it's the greatest problem for tourism right now, so stop pandering to the exporters (the filthy stinking rich lobbyists) who are enjoying record export growth, but bitching because they're pricing in dollars for a US market. Ask the Fed what's going to happen, using unnatural taxes on speculators just hurts the rest of us.

[Thules]

For those of us denominated abroad, I'm sure we would all appreciate the Baht being weaker against our home based currencies. However, if we are to be taxed whenever bringing in funds from abroad, it would also raise the cost of our living here.

[passon]

I'm no economist, either, but the Thai government uses the word "scheme" a lot, and I tend to associate that word with a deception or a ploy. There seem to be a lot of mouths at work here. One says the government has a USD 21.6 billion dollar surplus and has built up USD 55 billion dollars in reserves over the last three years, but it's borrowing USD 3.3 billion to "stimulate" the economy." Isn't the economy already stimulated with all that surplus and reserve money? The SET 50 index fund is up by about 7.72 points and the SET 100 index fund is up 16.03 points, primarily because of what has been described as foreign investment. So if the economy is being supported by foreign investment, why then does it become necessary to tax new foreign capital inflows that would continue to strengthen the economy? In the English lexicon we call that, "icing on the cake." I could understand it if there was instability or volatility in the market as a direct result of short term investments, but there is not a single indicator that presumes that to be true, so it seems to be that imposing a penalty for short term investments becomes nothing more than a deterrent irregardless of an investors intentions to invest on a short or long terms basis (the market determines that aspect of investment); and, if my memory serves me well, it was a big enough deterrnet the last time this scheme was imposed that it became the reason why the imposition of a tax penalty was lifted to begin with. So it seems to be the same logic that says tourism and exports are up, so lets appreciate the baht so tourist can spend less money while world markets shop below the Malaysian and Thailand currency appreciation line, and do it while the major economies around the world are in a recession, when more people and industry are watching their bottom line and looking for ways to make their money work more effectively. I don't know about everyone else, but if business is good, I don't have a tendency towards sabotaging a positive cash flow. Can someone talk me down?

[chainarong]

B.O.T will call a nice tune, then it will fall outta tune, then they will play another tune, if it ain't broke don't touch it , let the free market decide, the aud is all over the place, makes good cross rate for forex enthusiasts.

[mccw]

Maybe just a half a percent or something as an excuse to be doing something about the bht to allay the cries of sme exporters; but really just a new source of revenue for gov to pay for these welfare programs in the pipeline.

Not a bad "scheeme" as a small amount wouldn't put off investors but could generate a sizable amount in total for the government.

[Thules]

^ I can't contend what you say either, except to possibly suggest these tax measures could be a way for the slow down what the government percieve as an overheating economy (?).

I am surprised someone hasn't replied already with their knowledge of previously imposed tax rates and thresholds.

[mccw]

^cool it down a little no bad thing so long as not too much.

Free markets booming unchecked is dangerous as the cycle of boom bust has most recently shown us again. The countries in the best shape are those more regulated and protected and fiscaly conservative than those placing all faith in the free Market

[mccw]

Save I'm good times and spend when thing cheaper in the down turns. Bows the time for big infastruvture projects.

Sorry veiring off topic

[passon]

^ I can't contend what you say either, except to possibly suggest these tax measures could be a way for the slow down what the government percieve as an overheating economy (?).

I am surprised someone hasn't replied already with their knowledge of previously imposed tax rates and thresholds.

I mentioned it briefly in my post!

[Pib]

See below weblind for a little history on Thailand's previous experiment with capital controls on equity, bonds, and currency. The BIG investors didn't like the controls and generally found ways around them. For the common man in terms of wiring over money to live on, buy a house, buy a car, etc., it was basically a non-event although there were a few stories where people would be sending over a large sum of money to buy a house, etc., and the receiving bank would only initially release 70% of the money sent and put the other 30% in a special account until you clearly showed what the money was being sent over for. Summary: impacted LARGE investors; didn't really impact the everyday expat living in Thailand other than a better exchange rate "for a while"....then the capital controls pretty much faded away.

http://www.atimes.com/atimes/Southeast_Asia/JC06Ae02.html

[Thules]

Thanks Passon and Pib. As a mere 'financial mortal' over here, you've provided the assurance that I really don't have anything to worry about in this regard.

[passon]

See below weblind for a little history on Thailand's previous experiment with capital controls on equity, bonds, and currency. The BIG investors didn't like the controls and generally found ways around them. For the common man in terms of wiring over money to live on, buy a house, buy a car, etc., it was basically a non-event although there were a few stories where people would be sending over a large sum of money to buy a house, etc., and the receiving bank would only initially release 70% of the money sent and put the other 30% in a special account until you clearly showed what the money was being sent over for. Summary: impacted LARGE investors; didn't really impact the everyday expat living in Thailand other than a better exchange rate "for a while"....then the capital controls pretty much faded away.

http://www.atimes.co...a/JC06Ae02.html

Thanks for the link. I knew they had a previous scheme, but I could not recall exactly what it was, but I knew it had been eliminated. It will be interesting to see where this one goes if they go forward with it, but the whole idea still makes no sense to me!

[yellow1red1]

^cool it down a little no bad thing so long as not too much.

Free markets booming unchecked is dangerous as the cycle of boom bust has most recently shown us again. The countries in the best shape are those more regulated and protected and fiscaly conservative than those placing all faith in the free Market

free markets is the wrong name; wild markets is the game

allows corruption and usury 18 to 30% interest rates

the wild economy keeps corporations 'free' from checks and balances on their 'pursuits'

economically, globally, environmentally, socially

no need to do a 'study' just look at mess it has created world wide , deficet financing whole counries

Some countries like Thailand are only a back eddy in the flood,

They 'could' find ground by getting out of Globalisation, but 'won't', they will soon be washed along when personal debts catch up to peopel in the G 30 G50 Nations.

[neilf]

I'm no economist but money flows across borders by osmosis, it goes where it can earn the best returns, it's flowing into Thailand because Thailand is doing much better after the recession than the US or UK. It's six of one half a dozen of the other, you want stimulus and high economic growth, with low inflation, but you don't want the capital influx strengthening the baht too much. What to do?

And by the way, the baht is 25% up on the pound in the last 15 months, what could you do about that, it's the greatest problem for tourism right now, so stop pandering to the exporters (the filthy stinking rich lobbyists) who are enjoying record export growth, but bitching because they're pricing in dollars for a US market. Ask the Fed what's going to happen, using unnatural taxes on speculators just hurts the rest of us.

do you mean oz moses the aussie bar phrophet cos if you do hes crook mate

[Gobbledoc]

I get it now, the BOT has been intervening strengthening the baht seen almost on a daily basis. This is FACT.

Now they say, lets tax hard currencies coming into Thailand to devalue the baht.

What a scam.

[JimGant]

From the link Pib posted:

Although Thailand's brief capital controls experiment was wildly unpopular with foreign equity and other short-term investors, their overall cost to the economy was minimal and in the main achieved the BoT's policy objective to stem the baht's rise.

Ah, the days of the onshore/offshore disparity in FX....

But, sounds good to me if history can repeat itself.

[Abrak]

I'm no economist, either, but the Thai government uses the word "scheme" a lot, and I tend to associate that word with a deception or a ploy. There seem to be a lot of mouths at work here. One says the government has a USD 21.6 billion dollar surplus and has built up USD 55 billion dollars in reserves over the last three years, but it's borrowing USD 3.3 billion to "stimulate" the economy." Isn't the economy already stimulated with all that surplus and reserve money? The SET 50 index fund is up by about 7.72 points and the SET 100 index fund is up 16.03 points, primarily because of what has been described as foreign investment. So if the economy is being supported by foreign investment, why then does it become necessary to tax new foreign capital inflows that would continue to strengthen the economy? In the English lexicon we call that, "icing on the cake." I could understand it if there was instability or volatility in the market as a direct result of short term investments, but there is not a single indicator that presumes that to be true, so it seems to be that imposing a penalty for short term investments becomes nothing more than a deterrent irregardless of an investors intentions to invest on a short or long terms basis (the market determines that aspect of investment); and, if my memory serves me well, it was a big enough deterrnet the last time this scheme was imposed that it became the reason why the imposition of a tax penalty was lifted to begin with. So it seems to be the same logic that says tourism and exports are up, so lets appreciate the baht so tourist can spend less money while world markets shop below the Malaysian and Thailand currency appreciation line, and do it while the major economies around the world are in a recession, when more people and industry are watching their bottom line and looking for ways to make their money work more effectively. I don't know about everyone else, but if business is good, I don't have a tendency towards sabotaging a positive cash flow. Can someone talk me down?

It is essentially a money supply problem. The basic equation is ....

MV = PQ

If there are capital inflows of US$ then the BoT exchanges them for baht.

This will increase M which will in turn tend to increase P - particularly asset prices.

So the BoT issues bonds to soak up excess liquidity - a process known as sterilization.

It tends to be expensive as the BoT must absorb some interest cost and its intervention doesnt usually stop the currency from appreciating. The more it intervenes, the greater it essentially leaves itself exposed to currency appreciation or inflation - P.

Fiscal stimulus is basically aimed at directly boosting Q.

One of the problems the BoT faces is that it has already intervened very heavily so it encourages a bet against them as does raising interest rates. I thought they should have introduced capital controls 9 months ago when it was obvious they were screwed but the Democrats are very much committed to open markets and temporary capital controls tend to effect FDI. Another alternative would be to tax asset markets but this is not very popular as a policy option.

[whybother]

I get it now, the BOT has been intervening strengthening the baht seen almost on a daily basis. This is FACT.

Now they say, lets tax hard currencies coming into Thailand to devalue the baht.

What a scam.

Why would the BOT intervene to strengthen the baht, and then intervene to devalue it?

Is it "FACT" or is it just your conspiracy theory?

[Gobbledoc]

BOT own admission they reg intervene. This is also reported on Bloomberg platform and Thompson Reuters out of the Singapore office by traders who have access to raw data, like EBS and Routers 3000. You will need to spend several thousand USD a month to have access to this WhyBother, just he news I mean, not the EBS or R3000 of course. The BOT say they are trying stabilize the Baht, each time they do, it seems to never devalue, funny that don't you think.

[spacebass]

Where is the free market? I can send money into Thailand freely, I can not send it out freely. !