Bangkok approves banking tax cuts

Bangkok approves banking tax cuts

BANGKOK (AFP): The Thai cabinet yesterday approved cuts in banking taxes in a move it hopes will help transform Thailand into a regional capital market hub by boosting its offshore foreign currency loans.

The cabinet accepted a finance ministry proposal to eliminate taxes on fee income and interest income derived from foreign currency loans to businesses operating outside of Thailand.

In addition, it agreed to remove a withholding tax on profits repatriated by foreign and Thai banks operating under the Bangkok International Banking Facilities (BIBF).

The BIBF is the regulatory framework under which certain licensed banks are allowed to make foreign currency loans abroad, mainly to Thai and other firms in Southeast Asia.

Government spokesman Varathep Ratanakorn told reporters after the cabinet meeting that the tax cuts would also encourage Thais to invest overseas as the cost of borrowing foreign currency from their usual banks would be lower.

The taxes to be eliminated are a 30 percent tax on fee income, a separate tax on interest income, and a 10 percent withholding tax levied on profits repatriated from loans to firms outside the country.

The move was expected to put BIBF banks in a better position to compete with similar banks based in Singapore, where the tax burden is exceptionally light.

The Thai financial authorities have tightened restrictions on the distribution of BIBF foreign currency loans within Thailand. Their sourcing of funds had increased the country's exposure to short-term foreign debt.

Bank rates

In a related development, two of Thailand's leading commercial banks said yesterday they would cut their prime lending rate by 0.25 percentage points under a central bank plan to bolster the ailing economy.

Bangkok Bank plc and Siam Commercial Bank plc both announced they would drop their minimum lending rates (MLR) and fixed deposit interest rates to 12. 75 percent from 13 percent, effective Wednesday, officials said.

The cuts came after Thai Farmers Bank said it would cut commercial by the same margin interest rates following the unveiling of new central bank guidelines on Monday. Other banks were expected to follow suit.

"This is a response to the Bank of Thailand's decision on interest rates and we hope it will help the whole economy," a Bangkok Bank official said.

Bank of Thailand Governor Rerngchai Marakanond on Monday announced steps to allow commercial banks to cut the high interest rates blocking domestic growth. He made no cut in the key discount rate.