Thailand's Efforts to Cope with a Rapidly Aging Population
←
→
Page content transcription
If your browser does not render page correctly, please read the page content below
Thailand’s Efforts to Cope with a Rapidly Aging Population
—Can Thailand Become a Trailblazer for Other Middle-Income Countries Struggling with Demographic Aging?—
By Shotaro Kumagai
Economist
Economics Department
Japan Research Institute
Summary
1. Demographic aging has been especially rapid in Thailand compared with other major
emerging Asian economies. The percentage of the Thai population aged 65 or over is expected
to climb from around 10% at present to over 20% by the 2030s. In this article, we will analyze
the measures being implemented by the Thai government to curb the risk of fiscal deterioration
caused by a declining birthrate and demographic aging, as well as the ways in which businesses
in Thailand have responded to a shrinking workforce. We will also examine the impact that
these issues are having on Japanese companies operating in Thailand.
2. One of the ways in which the government is trying to reduce the risk of fiscal deterioration
caused by Thailand’s declining birthrate and demographic aging is by expanding the tax base
with the aim of increasing tax revenues. The government is also seeking to increase contribu-
tions and dividends from state-owned enterprises by improving their management efficiency.
Another goal is to improve the efficiency of government expenditure by using the public-private
partnership (PPP) approach to infrastructure development. The government has also implement-
ed social security reforms, including an increase in the age at which pension payments start.
While all of these measures are still in their initial stages, there are already signs that social se-
curity system reforms are not keeping up with the problem of senior care for low- and middle-
income people. As traditional in-home care by family members becomes unsustainable, there is
a risk that the need for senior care will become a serious social problem in the future.
3. Companies in Thailand are adapting to workforce shrinkage by using automated produc-
tion systems and digital technologies to improve their productivity, while shifting production
processes for which labor requirements cannot readily be reduced to neighboring countries. One
of the limiting factors for the former approach is a shortage of workers in the areas of IT and ro-
botic engineering. Urgent efforts will be needed to develop human resources in these areas.
4. Thailand’s changing population dynamics will have several negative impacts on Japanese
companies operating in Thailand, including increased corporate social security costs, worsen-
ing recruitment problems, and the shrinkage of markets for consumer goods targeted toward
younger people. At the same time, however, there will be growth in markets based on older con-
sumers, such as healthcare, senior care, health foods, and fitness services, as well as increased
business opportunities in emerging fields, including digitization and automation. This means
that were will be greater opportunities for market participation by Japanese companies thanks to
their expertise in business areas targeting the elderly. However, rather than simply transplanting
their business models from Japan, companies will need to customize them to match market con-
ditions in Thailand.
2 RIM Pacific Business and Industries Vol. XIX, 2019 No. 71Introduction land’s year-on-year real GDP growth rate in the
July-September quarter of 2018 dropped to +3.3%
Thailand’s economy has been on a continuous from +4.6% in the previous quarter, the growth
recovery trend since 2014. However, its real GDP rate for the whole of 2018 is expected to reach a
growth rate slowed dramatically after the start of six-year high on the back of a firm upward trend
2013 (Fig.1) under the impact of an export slump resulting from various stimulus measures imple-
caused by economic slowdowns in China and mented in the period to the end of the year.
other Asian countries, a reactionary downswing Thailand plans to hold to a general election in
in the wake of stimulus measures implemented in the first half of 2019 in preparation for a return to
2011 and 2012, worsening consumer and investor civilian rule. While the situation will still need to
sentiment due to domestic political turmoil, and be watched closely because of uncertainties within
other factors. These negative factors were espe- and beyond Thailand, such as the domestic politi-
cially pronounced during the first quarter of 2014, cal situation and the escalation of the U.S.-China
leading to a 0.4% drop in GDP compared with the trade war, strong economic growth is expected to
same period in 2013, the first such decline since continue, supported by infrastructure development
the October-December quarter of 2011, when relating to Thailand’s Eastern Economic Corridor
floods temporarily halted production in Thailand’s (EEC). However, Thailand is experiencing demo-
manufacturing industry. graphic aging and birthrate decline faster than any
However, the Thai economy has staged a con- other major emerging economy in Asia, and its
tinual recovery since then. This reflects an im- economic growth is unlikely to accelerate signifi-
provement in consumer and business confidence cantly because of a gradual increase in downward
in response to the stabilization of the political pressure on the economy from workforce shrink-
situation after the 2014 military coup, an export age and continual aging. We need to be aware of
rally driven by the expansion of the world econo- the risk that the economy will slow even more
my, and a bullish trend in the Thai stock market in than predicted if Thailand delays efforts to adapt
step with a global rise in stock prices. While Thai- to an aging society.
Thailand’s declining birthrate and demographic
aging have already been highlighted in various
articles, but few Japanese studies have examined
this issue comprehensively. In this article, we will
therefore reexamine recent trends relating to the
Fig. 1 Real GDP (Year on Year) Thai economy within the wider context of demo-
(%)
graphic aging, while also examining the future
6
implications for Japanese companies operating in
5 Thailand. In Part 1, we will examine demographic
trends in Thailand and factors affecting the liveli-
4
3.9% hoods of elderly people. In Part 2 we will analyze
3 2.7%
3.3%
the Thai government’s efforts to limit the risk of
3.0%
fiscal deterioration caused by demographic aging.
2
This will be followed in Part 3 by an analysis of
1.0%
1 the ways in which businesses in Thailand are cop-
0
ing with a shrinking workforce. Finally, in Part
4 we will consider the impact of these issues on
▲1 Japanese companies operating in Thailand, based
2013 14 15 16 17 18
(Year/quarter) on our analyses in the preceding sections.
Source: National Economic and Social Development
Board
RIM Pacific Business and Industries Vol. XIX, 2019 No. 71 31. Demographic Aging in Thai- birthrate had fallen below 2.1, which is regarded
land—Current Situation and as the population replacement level. Thailand’s
Future Outlook birthrate fell even lower than the levels reached
in China and Vietnam, despite the fact that it did
not employ the strict birth control measures used
(1) Reasons for the Fastest Demo-
in those countries. As noted in McGraw-Hill Edu-
graphic Aging Rate among the
Asian Economies cation [2014], one of the reasons for this was the
success of a grass-roots family planning promo-
tion campaign run by the Population and Com-
munity Development Association (PDA), which
We will begin by examining historical changes was founded by former Minister of Public Health
in and the future outlook for Thailand’s demo- Mechai Viravaidya in 1974. The PDA succeeded
graphic structure. Until the 1970s, Thailand’s in raising awareness of family planning in region-
total fertility rate (TFR) was consistently above al Thailand by using its theme song, “Too Many
5.0 (Fig.2), and its total population showed sus- Children Make You Poor”, to promote the use of
tained annual growth of around 3%. However, condoms even in rural areas, where family plan-
the birthrate began to fall sharply in the 1970s in ning had previously been seen as a taboo(1).
response to the government’s efforts to reduce Another factor that has contributed to falling
the number of children born by promoting fam- marriage and birth rates is the survival of tradi-
ily planning, with the aim of increasing per capita tional gender roles, including the perception that
spending on healthcare and education. Campaigns women should take care of housework, childcare,
to prevent the spread of AIDS and other sexu- and care of aging parents, despite the increasing
ally transmitted diseases (STDs) meanwhile led participation of women in the work force in step
to the widespread use of condoms. These factors with a rise in female education levels(2). As a re-
resulted in a dramatic reduction in the number of sult, Thailand’s birthrate has declined to just be-
unplanned births. By the early 1990s, Thailand’s low 1.5, while the working population peaked in
the first half of the 2010s and is now in decline.
In a survey on women’s attitudes to marriage con-
ducted by the College of Population Studies of
Chulalongkorn University, over 60% of unmar-
ried women stated that they did not want to get
Fig. 2 T
otal Fertility Rates for Asian married, while around 70% of married women re-
Emerging Countries
(Total fertility rate)
sponded that they felt could live happy lives with-
8
out having children. The tendency to marry late or
never is a global phenomenon linked to lifestyle
7
diversification. In addition, birthrates tend to de-
6
cline as income levels rise. However, Thailand’s
5
birthrate is low even compared with countries that
4 have similar income levels (Fig.3).
3 The Thai Government is taking various steps,
2 including the expansion of tax incentives, in an
1 effort to halt the decline in the birthrate. For ex-
0
ample, it raised the maximum deductible amount
1950 55 60 65 70 75 80 85 90 95 200005 10 15 for spending on children’s education from 30,000
(Calendar years)
Philippines Indonesia India baht per year to 60,000 baht from the second child
Malaysia Vietnam China Thailand onwards. Despite these efforts, the birthrate in
Source: United Nations Thailand has failed to rise. An additional tax de-
4 RIM Pacific Business and Industries Vol. XIX, 2019 No. 71Fig. 3 P
er Capita Nominal GDP and Fig. 4 Percentage of Populations of
Total Fertility Rate (2010-2015 Asian Emerging Countries
Average) Aged 65 and Older
(Total fertility rate) (%)
8 35
y = 0.87(log10(x))2 – 8.18(log10(x)) + 20.96
7 30
R2 = 0.60
6 25
5 20
4 15
3 10
2 5
1 0
Thailand Japan 1990 2000 10 20 30 40 50
(Calendar years)
0
100 1,000 10,000 100,000 Thailand China Vietnam Malaysia
(Per capita nominal GDP, USD) Indonesia India Philippines
Source: United Nations, IMF Source: United Nations
duction of up to 60,000 baht was introduced to as- pected to reach 75 years for men and 82 for wom-
sist with medical expenses during pregnancies, but en, because of factors that include the increasing
tax incentives alone are unlikely to be sufficiently availability of advanced medical technologies and
effective. Japan’s response to its falling birthrate growing awareness of health issues. As a result,
has included efforts to raise male awareness of the percentage of Thailand’s population over the
the need to participate in housework and childcare age of 65 is expected to expand from around 10%
and develop a business culture that encourages at present to over 20% in the 2030s. This repre-
people to balance work and home life. Thailand sents the fastest rate of aging of any major emerg-
will need to make similar efforts. ing Asian economy (Fig.4).
The continuing decline in Thailand’s birthrate These demographic changes in Thailand mir-
has been accompanied by a rise in life expectan- ror the changes that occurred in Japan between
cies, thanks to advances in medical technology 1985 and 2005. However, while Japan’s nominal
and improved access to medical care. Average life per capita GDP in the latter half the 1980s was
expectancies have risen from 58 years for men over $25,000, the figure for Thailand is slightly
and 63 years for women in the early 1970s to 71 less than $7,000. This means that Thailand is fac-
years and 78 years respectively today. This is a ing the challenge of demographic aging at an ex-
rapid improvement even when compared with tremely early stage.
other emerging Asian economies. Another factor Measures to combat the decline in Thailand’s
that has helped to lift average life expectancies birthrate are extremely important, but since it will
in Thailand is a major improvement in access to take decades before any increase in the birthrate
healthcare services for low-income people fol- begins to influence the demographic structure,
lowing the introduction in 2002 of the “30-Baht Thailand will need to address the issue of demo-
Healthcare Scheme”, under which people could graphic aging regardless of the success or failure
obtain a wide range of medical treatments by pay- of measures targeting the birthrate. The Thai gov-
ing just 30 baht for the initial examination. By ernment recognizes this and is implementing vari-
2030, Thailand’s average life expectancies are ex- ous measures. However, most of those measures
RIM Pacific Business and Industries Vol. XIX, 2019 No. 71 5are still in their preliminary stages. contrast, the ratio in northern Thailand has already
exceeded 20% (Fig.5). In terms of occupations,
retailing and wholesaling account for a high per-
(2) Living Standards for the Aged centage of jobs in the Bangkok Metropolitan Re-
gion, while in northeast and northern Thailand the
majority of people are employed in agriculture,
We will look next at living standards for the el- forestry and fisheries (Fig.6). Moreover, because
derly people in Thailand, based on the Survey of of high self-employment ratios in the agriculture,
the Older Persons in Thailand conducted by the forestry and fisheries sector, and in the retail and
National Statistical Office of Thailand (NSO)(3). wholesale sector, a national average of almost
Most Japanese who visit Thailand for business or 40% of elderly people in Thailand are employed.
sightseeing tend to base their perceptions of Thai- There are two major differences in the situa-
land’s economic and social situation on their im- tions surrounding elderly people in Thailand and
pressions of urban areas, such as Bangkok. How- Japan. First, elderly Thais have limited assets.
ever, we need to be aware that there is significant In Japan, the bulk of financial assets are owned
regional disparity in the living standards of the by seniors, but in Thailand, over 80% of elderly
elderly in Thailand. Only around 10% of elderly households have less than one million baht (Fig.7).
Thais have their homes in the Bangkok Metropoli- As a result, these households rely on other sources
tan Region, and the majority live in northeastern, of money, such as remittances from their children
southern, and northern regions of Thailand. For or government benefits, to meet their living ex-
this reason, we should not base our perceptions of penses. There is no fixed asset tax on owner-occu-
demographic aging in Thailand solely on the situ- pied land and houses, and because a high percent-
ation in Bangkok. Because young workers from age of elderly people are employed in agriculture,
low-income regions are flowing into the Bangkok forestry, and fisheries industries, they have a high
Metropolitan Region, elderly people make up only level of food self-sufficiency. In addition, Thai-
about 10% of the total population in Bangkok. In land has a mild climate. For these reasons, elderly
Fig. 5 N
umbers and Percentages of Fig. 6 J ob Categories of Aged People
Aged People by Region (2017) by Region (2017)
(Million people) (%)
4 25
Metropolitan
Bangkok
20
3 Central
15 North
2
10 Northeast
1 South
5
0 20 40 60 80 100
(%)
0 0 Managers, professionals, technicians, associated
North Northeast Central South Metropolitan professionals, skilled workers, clerks
Bangkok Service workers, shop sales workers
80 and older 70-79 60-69 Skilled agricultural and fishery workers
% of elderly people (right) Craft and related trade workers
Source: National Statistical Office Source: National Statistical Office
6 RIM Pacific Business and Industries Vol. XIX, 2019 No. 71people can easily meet their basic requirements in similar coverage under Thailand’s Social Security
terms of food, clothing and shelter. However, aged Scheme (SSS). However, the cover provided is
households that can afford to spend money in oth- limited compared with that available to civil ser-
er areas are primarily concentrated in the Bangkok
Metropolitan Region or central Thailand.
Second, Thailand’s social security system is
underdeveloped. A generous healthcare and pen- Fig. 7 A
ssets of Elderly People (60 and
sion scheme (Table 1) has been established for Older, 2017)
civil servants and employees of state-owned en-
terprises, who make up approximately 10% of the Over 3 million
(%)
workforce, in part because their income levels are 1-3 million
baht
baht
4.3
lower than in the private business sector. Medical 10.4
services under this scheme are available not only 700,000- Less than
to public employees but also to their dependents, 999,999 100,000
baht baht
and coverage continues even after retirement. 7.1 33.1
Most medical services are available free of charge, 400,000-
with the exception of hospitalization expenses at 699,999
baht
private hospitals. 14.2
Employees in private businesses, who make 100,000-
200,000-
up around 30% of Thailand’s work force, receive 399,999 199,999
baht baht
16.2 14.8
Source: National Statistical Office
Table 1 Main Social Insurance Systems in Thailand
Government/SOE employees Private company employees Self-employed, etc.
Medical Civil Servant Medical Benefit Social Security Scheme Universal Coverage Scheme
Scheme *Insuree only
*Coverage continues after retirement. Out-of-pocket costs, benefits: Low-
*Also available to family members. Out-of-pocket costs, benefits: Free cost or free access to healthcare at
healthcare services up to a certain designated hospitals (mostly national
Out-of-pocket costs, benefits: Free amount at registered medical hospitals)
access to healthcare services, except institutions
for private hospital admissions, etc. Premiums: 10% of the employee’s
salary (maximum of 15,000 baht),
with half each paid by the employee
and employer, additional contribution
of 2.75% from the government
Pension Government Pension Fund Social Security Scheme Monthly Subsistence Allowance
Age for start of payments: 60 Age for start of payments: 55 Benefits: Paid to people aged over
Premiums: Government contribution Benefit level: Calculated based on 60, 600-1,000 per month depending
equivalent to 3% of salary, allocation average monthly income in the five on age
of specific amounts to government years before retirement
reserve National Savings Fund
Benefit level: Sum of subscribed Provident Fund
amount + investment interest Premiums: 2-15% of the employee’s Age for start of payments: 60
salary, with half each paid by the Accumulated funds: 50-13,200 baht/
employee and employer year, additional subscription of 50-
Benefit level: Based on investment 100% by the government according
performance at the time of retirement to the age of the insuree
Benefit level: Sum of subscribed
amount and investment interest
Nursing care There is no public senior care insurance system.
Notes1: In order to grasp overall features, the simplified structure is displayed.
Notes2: : Taxpayer-funded : Funded mainly by insurance premiums.
Source: Compiled by JRI using Social Security Office, Social Security System in Thailand, Ministry of Health, Labour and Welfare, Kai-
gai Josei Hokoku [Report on Overseas Situation], and other sources
RIM Pacific Business and Industries Vol. XIX, 2019 No. 71 7vants. For example, healthcare services are only Fig. 8 M
ain Care Providers for
Persons Requiring Care (2017)
available at registered medical institutions, and
there are upper limits for the amount of free medi-
(%)
cal care provided. Furthermore, medical services
Other family
are available only to the employees themselves. members, friends Nurse, employee, etc.
1.1
Pension payouts started in 2014. When the pen- 13.4
sion system was first introduced, cover was only
mandatory for worksites with 20 or more employ-
Son
ees, and it was not until 2002 that all businesses 12.7
Daughter
40.6
were required to join. As a result, a significant
number of workers have reached retirement age
without being enrolled in the scheme for the re-
quired period of 15 years(4). Those retirees who Spouse
do not qualify for the scheme receive only a lump 32.2
sum consisting of their past contributions plus
Source: National Statistical Office
interest. Saving for retirement through provident
funds has been voluntary until now, but the gov-
ernment plans to phase in mandatory participa-
tion.
Self-employed people, who make up the largest
share of Thailand’s working population, also have
access to taxpayer-funded healthcare services and (Fig.8). Of course, given Thailand’s projected rate
pensions, but the content of these schemes is lim- of aging in the future, the traditional senior care
ited. Healthcare is accessible free or at a minimal pattern will become unsustainable, and the only
cost under the 30-baht scheme, but services are option will be to increase the percentage of long-
limited to medical consultations at designated na- term care recipients in specialized facilities.
tional hospitals. Moreover, the scheme is designed
primarily for the treatment of acute conditions,
and long waiting periods have become the norm.
The National Savings Fund pension scheme was 2. Responding to the Risk of Fis-
established relatively recently in 2015 and cur- cal Deterioration Due to Demo-
rently only has only about 600,000 members. Se- graphic Aging
nior citizens who are not covered by the pension
system receive the Old Age Allowance of between
600 to 1,000 baht every month. Given that the cur- In this section, we will examine the various
rent minimum wage in Thailand is 308-330 baht problems that Thailand will face as demographic
per day, this is clearly a small amount of money(5). aging continues. We will focus on the risks of fis-
As a result, the biggest source of income for se- cal deterioration and labor shortages, which are
nior citizens who are not working is transfers of likely to have a particularly significant impact. We
money from their children. will also examine the ways in which the govern-
Thailand has no public long-term senior care ment and businesses are working to counteract
insurance scheme, in part because of a deep-root- these issues.
ed tradition of family-based care for aged rela-
tives. Care is provided primarily by daughters of
care recipients in 40% of cases, while 30% are
cared for by their spouses. Only a limited num-
ber receive fee-based care in specialized facilities
8 RIM Pacific Business and Industries Vol. XIX, 2019 No. 71(1) Current Fiscal Situation and Future through to 2023(6). It should be noted that the IMF
Outlook estimates are based on relationships among vari-
ous macroeconomic variables, such as the real
GDP growth rate, the inflation rate, and interest
Looking first at Thailand’s general government rates, and that the IMF has not released break-
accounts, we find that the fiscal situation has re- downs of fiscal balance forecasts for each institu-
mained generally sound over the past few years. tional sector.
For example, the debt balance is around 40% of While Thailand can be expected to preserve its
nominal GDP, and while the fiscal balance shifted fiscal stability in the foreseeable future, the task
from a surplus in 2015-16 to a deficit in 2017, of maintaining long-term fiscal soundness may
the deficit amounts to just 1% of GDP. In 2018, not be easy for the following reasons. First, if we
growth was higher than initially predicted, result- examine each institutional sector’s balance in the
ing in a continuing upward trend in tax revenues. general government accounts, we find that the sur-
The Ministry of Finance responded to this situ- plus in the social security funds has played a ma-
ation by announcing a policy of maintaining the jor role in keeping the overall deficit under control
current level of fiscal discipline under a frame- (Fig.9). However, the balance for this sector is ex-
work that includes (1) a public debt ceiling of pected to worsen as demographic aging progress-
60% of nominal GDP, (2) a foreign currency debt es. Furthermore, there will be a continuing up-
ceiling of 10% of total public debt and 5% of ex- ward trend in expenditure on Old Age Allowance
ports of goods and services, and (3) a current year payouts and healthcare, which are funded from
fiscal deficit ceiling of 35% of current revenues tax revenues, while personal income tax revenues,
(Fiscal Policy Office [2018]). In June 2018, the which make up about 10% of total tax revenues,
IMF released the report on its 2018 Article IV will come under pressure from workforce shrink-
Consultation with Thailand. According to this re- age (Fig.10). The Thai government is responding
port, the IMF expects Thailand’s ratio of national to this situation by working to improve financial
debt to GDP to remain stable at its current level stability through a variety of initiatives.
Fig. 9 G
overnment Expenditure by
Institutional Sector
(10 billion baht)
Fig. 10 Government Revenues (2017)
3
(%)
Others
2
Automobile taxes 11.1 Value added tax
3.7 26.8
1
Tariffs
3.8
0 SOE dividends
5.8
▲1
Liquor/tobacco
▲2 taxes
7.6
Oil taxes
▲3 7.9
2013 14 15 16 Corporation
(Calendar years) tax
Central government Local governments Personal income tax 22.2
Social Security Funds Total 11.2
Source: IMF, Ministry of Finance Source: Ministry of Finance
RIM Pacific Business and Industries Vol. XIX, 2019 No. 71 9(2) Measures to increase tax revenues and the improvement of tax collection efficien-
cy(7).
Asset taxes in Thailand include an inheritance
Interest in Thailand’s efforts to improve its tax of up to 10% on estates worth more than 100
medium- to long-term fiscal stability will focus million baht, and a gift tax of up to 5% when as-
first of all on tax reform measures. The Thai gov- sets worth over 20 million baht are gifted. These
ernment is rolling out a variety of initiatives to taxes were the focus of intense debate when they
achieve goals that include the expansion of tax were introduced in February 2016. The introduc-
revenues, the reduction of inequality, and the im- tion of the land and building tax was postponed
provement of health (Table 2). The basic policy to allow further deliberations in Thailand’s parlia-
aims behind these reforms, as explained by then ment, the National Legislative Assembly (NLA),
Permanent Secretary of Finance Somchai Suj- but the measures were finally passed in November
japongse during an interview with the Bangkok 2018 and will come into force in January 2020.
Post newspaper in March 2018, are the expansion Land will be classified as agricultural, residen-
of the tax base relating to consumption and assets, tial, commercial or undeveloped and will be taxed
Table 2 Recent Tax Reforms Resulting in Increased Tax Revenues
Item Details Anticipated benefits other than Introduction
revenue growth
Introduction of 10% tax on inherited assets worth Reduction of inequality Introduced in February 2016
inheritance tax over 100 million baht (5% if the
heir is a direct lineal ascendant or
descendant)
Introduction of gift 5% tax on assets worth 20 million Reduction of inequality Introduced in February 2016
tax baht or more
Introduction of land Taxation at 0.01-0.7% of assessed Reduction of inequality, effective To be introduced in January 2020
and building tax value of land according to four utilization of real estate
categories (agricultural use,
residential use, commercial use
undeveloped)
Introduction of sugar Taxation at 0.1-1.0 baht per 100ml, Reduction of healthcare costs Introduced in September 2017 (with
tax depending on sugar content, rate to through health improvement a grace period of 2 years, taxation to
be raised in steps start in September 2019)
Taxation of 15% taxation of profits on sales Control of speculation Introduced in May 2018
virtual currency/
digital currency
transactions
Increase in tax on Withholding tax on bond investment Elimination of investment distortions Cabinet decision in August 2018
dividends from bond trust dividends raised from 10% to by setting the tax rate at the same
investment funds 15% level as for dividends from direct
bond investments
Taxation of content Taxation of YouTube and other Funding for consumer protection Under consideration
streaming via the content providers engaged in and the healthy development of the
Internet streaming movies, etc., via the media industry
Internet (details under consideration)
Increase in cigarette Tax rate on cigarettes priced at 60 Reduction of healthcare costs To be implemented in October 2019
tax baht or less per pack raised from through health improvement (Media reports indicate that the
20% to 40% government has unofficially decided
to postpone the measure until 2021)
Commodity tax on Tax of 150-200 baht, depending on Environmental protection Under consideration
motorcycles CO2 emissions
Tightening of single- Requirement for financial institutions Prevention of tax evasion Regulations to be tightened in
ledger policy to base credit screening only on January 2019
financial statements submitted to the
Revenue Department
Revision of Changes to method for company tax Improvement of tax collection Under consideration
consolidated payments by parent companies and efficiency, prevention of tax evasion
taxation system overseas subsidiaries
Source: Compiled by JRI
10 RIM Pacific Business and Industries Vol. XIX, 2019 No. 71at rates ranging 0.01% to 0.7%, depending on a policy aimed at reducing annual per capita salt
its classification and value. These asset taxation intake by 30% from its present level. It has indi-
measures were in part intended to correct income cated that for the time being these measures will
inequality, which has been one of the causes of be implemented through methods that include re-
political conflicts since the mid-2000s. Persistent quests for cooperation from food manufacturers,
opposition from the wealthy is reflected in the de- and the certification of health foods. However, it
sign of these tax systems, including substantial is possible that in the future the Ministry will seek
deductions, and low tax rates. However, there is to impose taxes on foods containing fat and salt,
likely to be increasing upward pressure on the tax which can increase the risk of cancer, strokes, and
rates because of the growing need to fund mea- circulatory system diseases, in order to encour-
sures to address demographic aging. age the consumption of healthier foods. Despite
Thailand has also started to levy taxes on the denials from the Ministry of Finance, rumors have
rapidly expanding digital economy. For example, started to circulate about the introduction of a “salt
in May 2018 the government responded to the rap- tax”. In addition, while tobacco products are al-
id expansion of trading in digital assets, including ready taxed, the government has announced plans
virtual currencies, in recent years by introducing to increase the tax rate for cigarettes priced under
the Digital Asset Law. This law imposes a 15% 60 baht per pack from 20% to 40%.
tax on profits from sales with the aim of curbing Other measures under consideration include the
speculation. In December 2018, the NLA passed imposition of a purchase tax on motorcycles ac-
amendments to Thailand’s tax laws concerning cording to their CO2 emission levels as a way of
the taxation of e-commerce (EC) businesses. The protecting the environment, as well as changes
changes will come into force in January 2020. The to the consolidated tax payment system in order
Revenue Department plans to link its systems to to make the tax collection process more efficient
those of financial institutions in order to identify and prevent tax evasion. In relation to measures to
accounts that exceed certain criteria for the fre- prevent tax evasion, the Ministry of Finance has
quency and amounts of deposits and remittances, announced that the single ledger policy will be
as the basis for audits to determine whether there strictly enforced from 2019 onwards. In the past
are any tax obligations. The government is also SMEs in Thailand have commonly maintained
considering the taxation of operators streaming one set of ledgers for tax payments and another
content through YouTube and other sites, with the for negotiating loans with banks, but the govern-
aim of protecting consumers on the Internet. ment has directed that from January 2019 onwards
Thailand is also working to develop a tax sys- commercial banks must base credit checks on the
tem that not only boosts revenue, but also reduces financial statements that have been submitted to
healthcare spending by encouraging healthier life- the Revenue Department. Another factor that is
styles. For example, in September 2017 a sugar expected to contribute to the improvement of tax
tax was introduced at the rate of 0.1 to 1.0 baht collection efficiency is the shrinkage of the in-
per 100ml for soft drinks, based on their sugar formal sector, in part because of the efforts of the
content. Currently sugar is the only food ingredi- Bangkok Metropolitan Government to eliminate
ent that is subject to taxation, but it is possible street traders, mainly to enhance the city’s appear-
that the scope of these taxes will expand in the fu- ance and prevent fires.
ture. In fact, the Ministry of Public Health appears Amid these efforts to expand tax revenues from
to becoming more focused on health and in July various sectors, there have also been calls for an
2018 it announced a policy under which manu- increase in the rate of value-added tax (VAT),
facture, importation, and sale of food containing which is the biggest revenue category. For exam-
trans fatty acids, which increase the risk of car- ple, the IMF has recommended that once there are
diovascular disease, will be prohibited from Janu- clear signs of an economic recovery trend, Thai-
ary 2019 onwards. The Ministry also announced land’s VAT rate should be raised in stages from
RIM Pacific Business and Industries Vol. XIX, 2019 No. 71 117% to 10% (IMF [2016]). Assistant Professor Thai government that will be inaugurated follow-
Thira Woratanarat of the Faculty of Medicine at ing the general election scheduled to take place
Chulalongkorn University has suggested that rais- in the first half of 2019. However, given that the
ing Thailand’s VAT rate by 1% would provide a military government did not raise the VAT rate de-
reliable source of revenues to cover projected fu- spite the stability of its power base suggests that it
ture increases in healthcare expenditure(8). Imme- may not be easy to increase it.
diately following the 2014 coup, the military gov-
ernment expressed support for the idea of raising
the VAT rate to 10%, in part because Thailand’s (3) Improving the Management Effi-
rate is lower than rates in neighboring countries ciency of State-Owned Enterprises
and there is room for a moderate increase (Fig.11).
However, with the approach of a general election
in preparation for a return to civilian in the first In addition to its tax reform measures, the Thai
half of 2019, the government has instead decided government has also initiated measures to im-
to leave the VAT rate at its present level. The VAT prove the management efficiency of state-owned
rate was originally set at 10% under Thai tax law, enterprises with the aim of increasing contribu-
but this was lowered to 7% following the onset of tions and dividends. Thailand has 55 state-owned
the Asian financial crisis. The reduction has been enterprises, including PTT Public Company Lim-
repeatedly extended by decree since then. At a ited, which is the country’s leading energy com-
cabinet meeting in July 2018, it was decided to pany, as well as Thai Airways International Public
extend the reduction until the end of September Company Limited, Airports of Thailand Public
2019. Company Limited, and Krung Thai Bank Public
The future direction of the VAT rate will depend Company Limited, which is one of Thailand’s five
on the stability of the power base built by the new major commercial banks, as well as the Bangkok
Mass Transit Authority, which is responsible for
the operation of elevated railways and subway
lines in Bangkok, and the Mass Rapid Transit Au-
Fig. 11 V
alue Added Taxes in Asian thority of Thailand (Table 3). These state-owned
Countries enterprises all operate under the control of the
State Enterprise Policy Office (SEPO), and have
China 16 total assets that exceed 14 trillion baht (Fig.12).
S. Korea 10
Japan 8 Their payments to the government make up 6%
Taiwan 5
of total government revenues. While Thailand’s
Philippines
Cambodia 10
12 state-owned enterprises remain in the black over-
Indonesia
Laos
10
10
all, their average return on assets (ROA) is around
Malaysia 10 2%. This compares unfavorably with the compa-
Vietnam 10
Singapore 7 nies listed on the Stock Exchange of Thailand,
Thailand 7
Myanmar 5 which have an average ROA of over 5%. State-
India 28 owned enterprises give priority to their public role
Pakistan
Bangladesh 15
17 and intentionally keep the prices of their services
Sri Lanka 15 low. Although they do not need to achieve the
0 10 20 30
(%)
same level of profitability as private companies,
which aim to maximize their profits, there is still
Notes: China’s has four value added tax rates from 0-16%.
India has four standard GST rates from 5-28%. much room for improvement in their management
Malaysia and Pakistan uses the basic tax rate for
sales of goods. Myanmar uses the commercial tax
efficiency.
rate as its basic rate. As part of its efforts to improve the manage-
Source: Compiled by JRI using data from finance minis-
tries, the JETRO website, and other sources ment efficiency of state-owned enterprises and
12 RIM Pacific Business and Industries Vol. XIX, 2019 No. 71Table 3 List of State-owned Enterprises
Electric power
Metropolitan Electricity Authority, Electricity Generating Authority of Thailand, Provincial Electricity Authority, PTT
(4 companies)
Expressway & Rapid Transit Authority of Thailand, Port Authority of Thailand, Mass Rapid Transit Authority of
Logistics
Thailand, National High Speed Rail Corporation, Thai Airways International Public Co., Ltd., The Transport Co.,
(10 companies)
Ltd., AEROTHAI, Civil Aviation Training Center, Bangkok Mass Transit Authority, Thai Maritime Navigation
Social science &
Sport Authority of Thailand, Thailand Institute of Scientific and Technological Research, National Science
technology
Museum, Tourism Authority of Thailand, The Government Pharmaceutical Organization
(5 companies)
Public services National Housing Authority, Metropolitan Waterworks Authority, Provincial Waterworks Authority, Wastewater
(6 companies) Management Authority, Dhanarak Asset Development Company Limited, Industrial Estate Authority of Thailand
Telecoms CAT Telecom Public Company Limited, TOT Public Company Limited (former Telephone Organization of
(4 companies) Thailand), Thailand Post Company Limited, MCOT Public Company Limited
Agriculture Marketing Organization for Farmers, Dairy Farming Promotion Organization of Thailand, Rubber Estate
(5 companies) Organization, Fish Marketing Organization, Public Warehouse Organization
The Government Lottery Office, Bangkok Dock Company Limited, The Playing Cards Factory (Excise
Commerce Department), Thailand Tobacco Monopoly (Ministry of Finance), Police Printing Press (Royal Thai Police), The
(8 companies) Liquor Distillery Organization (Excise Department), The Market Organization, Thai Hotel and Tourism Union
Company Limited
Natural resources
The Forest Industry Organization of Thailand, The Botanical Garden Organization, Zoo Thailand Organization
(3 companies)
Krung Thai Bank Public Company Limited, Small And Medium Enterprise Development Bank of Thailand, Bank
Finance for Agriculture and Agricultural Cooperatives, Export-Import Bank of Thailand, Government Savings Bank,
(10 companies) Government Housing Bank, Islamic Bank of Thailand, Secondary Mortgage Corporation, Small Business Credit
Guarantee Corporation, Office of the Government Pawnshop
Source: Compiled by JRI using State Enterprise Policy Office data
Fig. 12 T
otal Assets of Major State-
owned Enterprises (2015)
strengthen their governance, the Thai government
has adopted a plan to establish a holding company
along the lines of Temasek, an investment com- Bank for Agriculture and
AgriculturalCooperatives
pany owned by the Singaporean government. Spe- Krung Thai Bank
cific moves toward the establishment of a holding Government Savings Bank
company began after the cabinet approved a draft PTT
bill relating to the plan in August 2016. The plan Government Housing Bank
was included in a bill approved by the cabinet in Electricity Generating
Authority of Thailand
August 2017 with the aim of strengthening super- Provincial Electricity Authority
vision of state-owned enterprises. This evolved State Railway of Thailand
into a plan to establish a holding company with Thai Airways International
jurisdiction over 11 companies, including Thai Mass Rapid Transit
Authority of Thailand
Airways International, PTT, and TOT, ahead of 0 1 2 3 4
the general election that will result in a return (Trillion baht)
to civilian rule. However, at the end of October Source: State Enterprise Policy Office
2018 SEPO Director General Prapas Kong-led
indicated that he thought the establishment of a
holding company should be postponed because of
prolonged debate over the draft bill for the related governance. There needs to be greater clarity in
law in the NLA. Efforts to establish a holding the way directors are appointed to state-owned en-
company are expected to continue, but it is un- terprises from the government, including the Min-
certain whether changes to ownership structures istry of Finance, which is the supervising agency
would result in the anticipated improvement in for state-owned enterprises. Information should
RIM Pacific Business and Industries Vol. XIX, 2019 No. 71 13also be disclosed to allow regular verification of latest digital technology and a training facility for
its accuracy. In general, however, such reforms maintenance engineers near U-Tapao International
cannot easily be implemented because they would Airport. It also announced the goal of eliminating
result in conflicts with the government’s vested in- all of its accumulated losses by 2022. However,
terests. these measures alone will not be sufficient, and
In fact, despite government directives calling the company will need to take more drastic mea-
for operational improvements at Thai Airways In- sures, such as the closure of unprofitable routes,
ternational, the State Railway of Thailand, TOT which would result in job cuts. It is uncertain how
Public Company Limited, Bangkok Mass Transit far these reforms will progress under a manage-
Authority, CAT Telecom, and the Small and Me- ment structure that lacks commitment to profit-
dium Enterprise Development Bank of Thailand, ability due to the presence of many senior execu-
which are continually experiencing financial prob- tives appointed to cushy post-retirement jobs after
lems, these companies have been slow to rebuild government and military careers. During an in-
their finances. terview in April 2016, former CEO Charamporn
Not even Thai Airways International has been Jotikasthira commented that there was a lack of
able to lift itself out of financial problems, despite commitment to management reforms in the com-
strong pressure to improve its management be- pany(10). Full privatization would be one way to
cause of its status as a listed company with around accelerate the management reforms, but this is un-
30% of its shares held by private investors (9). likely to be achieved in the short-term due to op-
While the company’s financial position has im- position not only from vested interests within the
proved significantly thanks to lower fuel costs re- Ministry of Finance, but also from labor unions.
sulting from the oil price decline since 2015, it is Like Thai Airways International, the State Rail-
still not achieving a positive bottom line. Its stock way of Thailand has also become the focus of
price is languishing, and no dividends are being concerns about its financial problems. It has an-
paid (Fig.13). In an effort to reduce its operating nounced a policy designed to improve its financial
expenses, the company has established a highly position through the leasing of unused land that it
efficient maintenance facility equipped with the owns, but these efforts are still at the development
stage. If financial restructuring is delayed, the
government will face an increasing fiscal burden
because of the need to cover the company’s loss-
es. There is also a risk that high-speed rail proj-
Fig. 13 B
efore-tax Earnings of Thai ects would be negatively impacted. In fact, there
Airways
(10 billion baht) (billion baht)
have already been calls within Thailand for the
25 30
reconsideration of plans to introduce expensive
Japanese Shinkansen technology on the Bangkok-
20
20 Chiang Mai high-speed rail link because of fears
that daily passenger numbers could be lower than
15
10
initially projected(11).
0
10
▲10 (4) Efforts to Promote the PPP Ap-
proach
5
▲20
0 ▲30
2008 09 10 11 12 13 14 15 16 17
(Calendar years) In part because of these situations, the Thai
Profit before tax (right) Revenues Costs government has announced a policy of using the
Source: Thai Airways Annual Reports public-private partnership (PPP) approach in its
14 RIM Pacific Business and Industries Vol. XIX, 2019 No. 71infrastructure development projects, with the aim Orange Line, and the extension of the Purple Line.
of reducing expenditure and improving the man- Using the extensive powers granted to him un-
agement efficiency of state-owned enterprises. der Article 44 of the interim constitution, Prime
One example of this is the EEC infrastructure de- minister Prayut Chan-o-cha has drastically simpli-
velopment plan approved by the EEC Policy Com- fied the approval process with the aim of speeding
mittee in February 2018, which has a total budget up PPP projects. Work is in progress on changes
of approximately 1 trillion baht. The EEC Policy to PPP-related laws with the aim of further speed-
Committee has indicated that the PPP method will ing up the process. According to SEPO Director
be used for work equivalent to around 60% of this General Prapas Kong-led, the time required to
project expenditure. The PPP approach will be complete the PPP approval process will be re-
used for six projects that have a particularly high duced from the current average of 44 months to
priority: (1) the expansion of U-Tapao Interna- around six months. However, NGOs and others
tional Airport and the development of surrounding have expressed concern that the excessive simpli-
areas in order to attract aviation-related industries, fication of infrastructure development procedures
(2) the development of a high-speed rail system could lead to major environmental problems later
linking Suvarnabhumi, Don Mueang, and U- if the importance of environmental impact assess-
Tapao airports, (3) Phase III of the Map Ta Phut ments is underestimated.
Industrial Port expansion project, (4) Phase III of
the Laem Chabang port expansion project, (5) the
development of maintenance, repair and overhaul (5) Social Security System Reforms
(MRO) center facilities at U-Tapao International
Airport, and (6) the establishment of the Smart
Park Industrial Estate for companies engaged in We will conclude this analysis by examin-
digital technology-related activities (Fig.14). In ing trends in social security system reforms. In
addition, approval is currently being sought for 2017, the Thai government implemented a legal
the use of the PPP approach for improvements to amendment to set the retirement age at 60. The
subway lines in the Bangkok Metropolitan Re- aim of this move was to improve the soundness
gion, including the east-west section of the MRT of the pension scheme by raising the starting age
Fig. 14 Major PPP Projects, Project Expenditure
Budget Don Mueang
Project
(billion baht) International
Airport
High-speed railroad linking three airports 224.5
U-Tapao airport expansion, Eastern Airport City 200.0 バンコク Suvarnabhumi
Laem Chabang Phase 3 155.8 International Airport
Port of Map Ta Phut Phase 3 10.2 Samut
Prakan
Bangkok: Orange Line extension 238.0 Province Chon Buri
Province
Bankok: Purple Line extension 128.0 Gulf of
Thailand Port of Digital Park
Source: Compiled by JRI using data from Eastern Economic Laem
Corridor Office of Thailand, interviews, media reports Chabang
Rayong
Province
Port of Map
Ta Phut
U-Tapao
International Airport
RIM Pacific Business and Industries Vol. XIX, 2019 No. 71 15for the payment of benefits to private sector em- 2040s, in step with the growth in the number of
ployees under the Social Security Scheme (SSS) people aged 80 or older, who have a high inci-
from 55 to 60. There are also plans to raise the dence of illness (Fig.15). This means that there
current retirement age for civil servants from 60 is a risk that senior care could become a serious
to 63. The government is further considering the social issue in Thailand. Participants in a seminar
introduction of additional tax incentives relating held by the National Human Rights Commission
to the employment of older people in response of Thailand (NHRC) in November 2018 expressed
to increases in employers’ labor costs as a result strong concern regarding several serious social
of the higher retirement age. In addition to de- problems in this area, including abandonment of
laying the start of pension benefit payments, the the obligation to provide senior care, as well as
increase in the retirement age will also help to mental and physical abuse of elderly people(12).
mitigate labor shortages, as discussed later in this In response to these issues, the government is
article. Interestingly, when the Social Security Of- now working to improve care facilities. For ex-
fice (SSO) carried out a survey in the second half ample, in April 2017, the Ministry of Finance an-
of 2017 regarding the possibility of raising the nounced a policy calling for construction of a total
starting age for pension benefits, approximately of 2,000 senior residential facilities at five loca-
70% of respondents were in favor. This is because tions across the country. Major private hospitals
many households that are only eligible to receive are also actively building related facilities. For ex-
a lump-sum payment because they have not be- ample, in May 2017 the Phatari-Thonburi Hospi-
longed to the scheme long enough to qualify for tal, which is located in the Bangkok Metropolitan
pension benefits expect the higher pension start- Region, announced plans for the development of
ing age to result in increased benefits for them. As one of the Bangkok Metropolitan Region’s big-
far as the 30-baht healthcare scheme is concerned, gest senior residential housing complexes, “Jin
Prime Minister Chan-o-cha has indicated that Wellbeing County”, in Pathum Thani Province. In
the government will maintain the current system,
but there is speculation that it will be abolished
through an amendment to laws. There is little like-
lihood that the system will be abolished abruptly
because of the immense impact that this would Fig. 15 Forecast of Number of Bed-
ridden Aged People
have on Thai society. Nonetheless, it is possible (10,000 people)
that in future the amount payable by patients will
60
be increased in order to improve fiscal stability, or
that the scope of coverage under the scheme will 50 Forecast
be reduced.
Compared with its moves targeting the tax and 40
pension systems, the government has been very
30
slow to take action in the area of senior care. As
discussed earlier in this article, senior care in 20
Thailand has traditionally been provided at home
10
by family members, with the result that public se-
nior care systems are underdeveloped. However, 0
there is a risk that traditional care systems will 2015 20 25 30 35 40 45 50
(Calendar years)
break down due to the rapid pace of birthrate de- 80 and older 70-79 60-69
cline and demographic aging. As of 2017, there Notes: The figures are estimates based on the percent-
were approximately 180,000 bedridden elderly ages of bed-ridden aged people in the 2017 survey
of the aged, and the United Nations age-based
people in Thailand. This number is expected to population forecasts (Median Estimate).
Source: Compiled by JRI using data from the National Sta-
exceed 300,000 by the 2030s and 500,000 by the tistical Office and the United Nations
16 RIM Pacific Business and Industries Vol. XIX, 2019 No. 71September 2018 it further announced that it would al systems. In collaboration with Muang Thai Life
be developing the Thonburi Hospital Health Vil- Assurance, an affiliate of the Kasikorn Bank, it is
lage Pracha Uhthit in Bangkok. As the influx of working to reduce the burden of healthcare costs
companies into the senior care market accelerates for people who require nursing care. In September
(Table 4), the government is meanwhile develop- 2017 the Government Savings Bank introduced a
ing safety and service standards for care facilities. reverse mortgage system, which allows the elderly
However, most of the facilities currently under to borrow money to cover their living expenses by
construction are intended for use by the wealthy using land and houses as collateral. However, the
or by elderly foreigners in Thailand for prolonged cost of Health at Home’s service are still too high
periods for medical tourism. As in the past, the for low-income people(13), while use of the reverse
only primary care providers for low- and middle- mortgage scheme is likely to be limited by a num-
income people are volunteers assigned by local ber of issues, including the poor financial literacy
governments, and family members (Fig.16). of elderly people, the risk that people will outlive
While the public sector has been slow to re- their assets, and the risk of fluctuations in interest
spond, the private sector has started to offer so- rates and property prices.
lutions to these social problems. For example, For these reasons, the government will probably
Health at Home, which was established in 2015, need to introduce a policy of expanding public
uses smartphones to provide visiting care services support systems in the senior care area, just as it
more efficiently and at a lower cost than tradition- did for healthcare with the introduction of the 30
Table 4 R
ecent Trends in Participation in the Operation of Housing and Care
Facilities, etc., for the Aged
Date reported/
Details
announced
Riei, a Japanese aged care company, opens Riei Nursing Home Ladprao, a fee-based rest home for wealthy
January 2016
individuals in Bangkok.
The Tokyo Metropolitan Small and Medium Enterprise Support Center hosts a business matching meeting
February 2017 between Japanese and Thai companies in such fields as senior care services, home healthcare equipment,
products for the aged.
The Sanga Group, a Japanese care provider, establishes MOS Sanga to provide consultation and training in the
February 2017
operation and management of healthcare and senior care facilities.
The Ministry of Finance announces a policy calling for the construction of housing for elderly people over 2,000
April 2017
unit in five locations (Samut Prakan, Chiang Mai, Chonburi, Nakhon Nayok, Prachuap Khiri Khan).
The Thonburi Healthcare Group, a private hospital chain, opens Jin Wellbeing County, one of the biggest
May 2017
residential complexes for the aged in metropolitan Bangkok.
The Thai subsidiary of Wellsys Partners, a Japanese care provider, opens WECC Garden Latphrao, a care facility
June 2017
for elderly Japanese living in Thailand.
A joint venture established by four real estate firms (Nye Estate, Chewathai Public, LPN Development, CH
July 2017
Karnchang) announces plans to develop housing for the aged in Phuket.
July 2017 Yanhee Hospital, a private hospital specializing mainly in cosmetic procedures, opens the Yanhee Elderly Center.
The real estate developer Sunplay Asia commences sales of Stage 3 of Sunplay Bang Sarey, a luxury resort for
August 2017
the aged in eastern Thailand.
MUFG Bank invites representatives of approximately 20 Thai companies with an interest in businesses targeting
September 2017
the aged market to Japan to tour facilities relating to care facility robots and barrier-free housing.
Magnolia Quality Development Corporation Limited (MQDC), a real estate in the CP Group (a major
October 2017
conglomerate) establishes Aspen Corporation to provide care services for the aged.
February 2018 The hotel operator Principal announces that it will develop serviced apartments for the aged in eastern Bangkok.
Supalai, a major real estate developer, announces that it will develop thousand eSupalai Elderly Home &
June 2018
Wellness Center in Saraburi Province in central Thailand.
September 2018 Thonburi Healthcare announces that it will develop Thonburi Hospital Health Village Pracha Uthit in Bangkok.
Source: Compiled by JRI using data from media reports and corporate websites
RIM Pacific Business and Industries Vol. XIX, 2019 No. 71 17You can also read
