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Published on January 27, 2008

The Federation of Thai Industries yesterday proposed a 13-point, fast-action package for the new government to steer the economy out of troubled waters.

First the FTI, the country's largest grouping of industrial and business enterprises, urged the Bank of Thailand to trim interest rates in the wake of the US Federal Reserve's 75-basis-point rate cut last Tuesday.

FTI chairman Santi Vilassakdanont said the central bank should take up the rate cut at the next meeting of its Monetary Policy Committee, scheduled for next month.

Second, the central bank should keep its 30-per-cent capital-reserve requirement at this stage to prevent excessive foreign capital inflows amid increased volatility in global financial markets.

Massive dollar inflows would strengthen the baht and erode the county's export competitiveness.

"We are also worried that there will be increased speculation on the baht," he said.

Third, the Finance Ministry should keep value-added tax (VAT) at its current rate of 7 per cent until the economic outlook has improved.

A VAT hike, as has been contemplated by the ministry, would drain consumer sentiment and brake economic growth.

"If the new government raises VAT to, say, 10 per cent, consumer confidence will dive immediately," he said.

On corporate income tax, however, the FTI told the new government to consider cutting the current 30-per-cent rate to 25 per cent. Enterprises should also be allowed to get tax breaks for retained losses for eight years instead of only five years.

Fifth, businesses should be allowed to double or triple their tax deduction for currency-hedging expenses so that they can reduce the cost of doing business amid increased volatility in the foreign-exchange market, he said.

Sixth, the new government should consider lowering income-tax brackets and using a progressive rate for tax breaks for low- and middle-income earners.

Seventh, the new government should consider providing soft loans for industries using more than 75 per cent local content in production.

Eighth, the government should broaden the taxpayer base so that the government's income and spending are in better balance.

Ninth, the new government will have to accelerate implementation of the mega-infrastructure projects.

Tenth, the government should devote 2 per cent of its fiscal budget to sponsoring research and development for products using a high percentage of local materials.

Eleventh, the government should consider a corporate income-tax cut for enterprises using 75 per cent or more local content.

Twelfth, the government should shorten the time frame of its feasibility study for the construction of a nuclear-power plant.

"It should take less than 13-14 years to establish the nuclear-power plant; otherwise we won't be able to compete with other countries due to higher energy costs," he said.

The outgoing Surayud government has approved a Bt1.8-billion budget to prepare the country for its first nuclear power plant, which should be running within 13 years.

To further foster collaboration between the government and the private sector, the FTI suggested the setting up of a joint organisation to consider reform of the legal system, measures to allocate resources for alternative fuel plants and other pressing matters.

FTI vice chairman Payungsak Chartsutipol said the FTI would form a new unit called the Office of Small and Medium Industry to support such firms.

The FTI is also focusing on environmental, energy, free trade, corporate social responsibility, good governance, productivity and innovation, he said, with 116 programmes under way.

Of these, 19 will be operated by the private sector, 71 will be run in collaboration with public agencies and the private sector, and the remaining 26 plans will need further government support.

Chonburi

Chalida Ekvitthayavechnukul

The Nation