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INFRASTRUCTURE FUND

Investors may get tax breaks

By Wichit Chaitrong

The Nation

The Finance Ministry plans to give tax incentives to investors putting their money in infrastructure funds, and the tax package will be submitted to the Cabinet for approval in the next two weeks, Finance Minister Thirachai Phuvanatnaranubala said.

The proposal seeks exemption from dividend tax for 10 years for individuals investing in an infrastructure fund, Thirachai told a news conference yesterday. The current dividend tax rate is 10 per cent.

The tax package will also cover exemptions or lower tax rates that may arise from asset transactions, he said. The operation of the fund would also involve value-added tax and stamp-duty fees.

The tax breaks are designed to lure investors to infrastructure projects such as tap water, wastewater treatment, electricity generation, mass transit and rail. The move would also reduce the burden on public funds, he said.

However, institutional investors and corporates would be subject to dividend tax, while individual and corporate foreign investors would not, he said.

Thirachai said the practice of state banks competing with commercial banks by extending new loans to large corporates would be stopped to reduce their risk exposure.

Thirachai said he had consulted the World Bank about the role of the state banks. He said he agreed with the suggestion to revive their previous role.

"State banks have gone too far by extending loans to large corporates, resulting in them directly competing with commercial banks," he said.

For example, the Bank for Agriculture and Agricultural Cooperatives extends loans of Bt300 million to food producers. The bank should only give loans to farmers or small businesses run by farmers, he said.

The Government Savings Bank should also focus only on retail customers, not large corporates as it does now, he said. The Export-Import Bank of Thailand should also limit its lending to only small exporters and importers, he said.

The World Bank was concerned about the solvency of state banks as they take on too much risk, Thirachai said.

State banks should also reform their accounting practices to meet global standards to make their operations transparent, he said. The combined assets of state banks is about 20 per cent of the banking system.

"According to the World Bank's model, bad debts are very high in state banks," he said.

Thirachai said he would issue a policy statement asking state banks to return to their previous objectives-limited role.

"They need not recall loans advanced to large corporate clients, but they must not extend new loans to them," he said.

The policy statement should be issued by the end of the year. State banks will also be required to follow the advice of the Bank of Thailand on issues such as increasing capital or making more provisions for risk asset classes.

They need to hire independent auditors to look at their financial statements, and rating agencies should be invited to rate their organisation or their debts.

When the government wants to direct banks to support its policy, it should make clear how much public money would be allocated to compensate the banks.

The financial statements of state banks should be open to scrutiny by the public, Thirachai added.

-- The Nation 2011-09-08