New auto tax rewards greener cars

Sunthorn Tunmuntong

The Finance Ministry’s latest excise tax rebate measure is pulling the trigger on boosting the production and use of electric cars in the country and aligning the industrial promotion strategy closer to the government’s green policy.

The prime minister clambers out of a hybrid BMW i8 he sat in at an auto show last August. (Photo by Thanarak Khunton), Bangkok Post.

As the largest automotive production hub in Southeast Asia, Thailand is making efforts to add electric vehicles to its regional auto supply chain and domestic market. After the Board of Investment’s (BoI) launch in March of its promotional privileges for electric vehicles, including tariff and corporate income tax exemptions, the ministry’s latest tax cut policy provides additional benefits for these greener types of cars.

The latest excise tax incentives cover electric vehicles which are assembled domestically and use batteries and components made in the country. The policy aims to attract car manufacturers and core electric component makers to set up production lines in Thailand. This measure can help drive supply and boost consumer demand.

Despite the global auto industry having seen the arrival of electric-powered technology years ago, electric car retail prices are still much higher than affordable cars. Prices remain the biggest obstacle to the wider adoption of electric cars.

Even though the cost of a lithium-ion battery, the most expensive component of an electric vehicle, has significantly decreased since 2009, several overseas governments have continued their support mechanisms to further reduce electric car prices.

For Thailand, the excise tax cut policy covers four types of vehicles. The first two are hybrid and battery-electric passenger vehicles which will get larger tax cuts than the other two types. The former will get a 50% cut from the current rate. The latter will be taxed 2%, a sharp drop from 10% (the lowest tax rate for all vehicles).

The other two are double cab pickup trucks and passenger pickup vehicles which use a hybrid-powered engine and emit less CO2 than conventional combustion engine cars.

The implementation of both BoI privileges and the Finance Ministry’s excise tax incentives suggests that Thailand is gearing towards promoting electric vehicles as its third champion, following similar strategies deployed for the production of pickup trucks and eco-cars.

The latest excise tax scheme could bring three types of benefits to Thailand.

First, it will likely lower retail prices of “greener” vehicles, making them more attractive to customers. This is not the first time that the government has deployed measures to lower the price of electric cars.

Previously, an import tariff exemption for key electric drivetrain components of hybrid models assembled in Thailand was enforced temporarily between 2010 to 2013. It resulted in a marked price drop of approximately 20,000 baht per vehicle and helped raise the volume of hybrid vehicles on the road during those years.

However, the new excise tax policy seemed to result in a greater drop in retail prices than the previous measure. One car maker has predicted that it can reduce the price of a hybrid model by up to 200,000 baht per vehicle, making these groups of environmentally friendly vehicles more appealing to customers.

Second, the local production requirement, as a binding condition for the excise tax eligibility, would help sustain the position of Thailand as the regional automotive production hub for the next generation of vehicles. This policy is the right move for a car-exporting country like Thailand as its future auto markets will demand cars with increasing environmentally friendly features. Therefore, electric cars are promising for Thailand as they offer models with less or even zero CO2 emissions.

Furthermore, the local production rule is a guarantee that one of the highest valueadded processes of car manufacturing is still in the country.
Malaysia, the third-largest automotive production base in the region, was the first mover, kicking off the Energy Efficient Vehicle project in 2014. It aimed to draw investment in the production of cars with low CO2 emissions and less fuel consumption, especially electric cars, by offering supergenerous tax incentives.

Now Thailand is officially offering itself as another choice for car manufacturing companies.

Finally, the new excise tax rates would bring a closer alignment between the taxincentive industrial promotion policy and the government’s environment protection policy.

The previous overhaul of automotive excise taxes in 2016 based on exhaust pollution has already provided a path to this goal, taking into account the cost of environmental footprints. However, a study by the Thailand Development Research Institute found that it was still not entirely rewarding for greener cars with low CO2 emissions. For example, the measure provided exclusive privileges for pickup trucks and eco-cars – the two product champions promoted by the government – which got higher tax cuts than other other types of vehicle including hybrid electric cars, even though they all had the same CO2 emission levels.

This means the tax cut policy is not harmonised with the environment policy which is based on CO2 emissions.
Therefore, the Finance Ministry’s latest excise tax privileges for electric passenger cars can help fine tune the industrial promotion policy based on tax structures with the environment policy that aims to curb CO2 emissions.

However, it is worth noticing that, under the new tax structure, hybrid double-cab pickup trucks still enjoy a higher tax cut than other vehicles which emit the same CO2 levels (lower than 175 gramme per kilometre). Specifically, they will be taxed at 10% (down from 12%) while gasoline vehicles will be taxed at 30-35% and hybrid cars at 12.5%. Promoting electric vehicles is the right direction for Thailand during this technology transition period.

However, ultimately, aligning the industrial promotion strategy with the environment protection policy should still be a goal worth pursuing.

Sunthorn Tunmuntong is a researcher at Thailand Development Research Institute (TDRI). Policy analyses from the TDRI appear in the Bangkok Post on alternate Wednesdays

First Published: Bangkok Post on Wednesday, July 12, 2017