On May 18, in the hope of boosting the weakening economy, a number of tax incentives were published in the Royal Gazette. For instance, the specific-business tax reduction to 0.11% from 3.3% for the real property sector, which would otherwise expire on March 28, has been extended to March 28, 2010 and has a retroactive effect to 29 March 2009. People who could not wait and already transferred the property during the last couple months can now submit a form to the Revenue Department for the SBT refund.

There is a revival of tax incentives for a qualified debt-restructuring scheme that is carried out under the framework of the Bank of Thailand. A debtor will be exempted from income tax on the hair-cut granted by financial institutions. Further, exemption is given for taxes (income tax, VAT, SBT and stamp duties) on the transfer of assets and execution of documents that take place between the debtor and the financial-institution creditor. Similar incentives also apply where the creditor is not a qualified financial institution but only if it jointly enters into a qualified debt-restructuring scheme led by a qualified financial institution. Tax deduction is given to those creditors sustaining damages from the debt restructure. All tax incentives are applicable to the transactions that are carried out during this year only.

Other interesting incentives include the exemption of tax for the income that is equal to 25% of the expenditures spent before the end of 2010 in acquiring brand-new power-saving materials, equipment and machinery, provided that no tax incentive under other particular laws is granted and the wears and tears of such assets are amortised for not less than five accounting years. This condition is to prevent the double dip where the taxpayer has already utilised another tax-incentive package.

Also, a qualified venture capital may be exempted from corporate income tax on capital gain derived from the disposition of shares in the ex-SMEs after their listing.

Importantly, since the tax-free corporate reorganisation was previously given only to the entire business transfer and the legal amalgamation, operators wishing to split a portion of businesses and keep a viable part may see the light at the end of the tunnel. The new tax package grants exemption of taxes (VAT, SBT and stamp duties) for a partial business transfer that takes place during this year. Though such tax incentive is seemingly useful in reorganising the business structure, its conditions are still vague and need clarifications from the Revenue Department.

However, if you recall the conditions that the Revenue Department imposed in applying the incentives under the old law, you will start worrying that the same might apply to the new legislation. Some of these conditions did make the partial business transfer unattractive and not very useful.

First of all, the Revenue Department did not allow the tax exemptions to the partial business transfer between the third parties but limited its application only to those taken place within the same group company. It means that the direct shareholding of more than 50% is required between the transferor and the transferee. For indirect shareholding through an intermediary, it is limited to the situation when the transferor holds shares in such intermediary 100% (practically speaking 99.99% is acceptable as no one can hold 100% anyway), which in turn holds majority shares in the transferee. By imposing such condition, companies were not given much opportunity to reorganise their business structures by transferring an unwanted line of businesses to the third party.

Further, the Revenue Department required under the old law that the transferee must waive the right to apply the carried-forward tax loss that occurred before the acquisition of the business against profits that may arise from such acquired business. This condition was caused by the fear that the partial transfer was implemented only to take advantage on the existing tax loss that the transferee had accumulated before the transfer date.

Sadly speaking, the tax-free partial-transfer package will not cover corporate income tax. Thus, if the transfer price is higher than the tax cost base, normal corporate income tax on net profits should be expected. However, you may assume that even if the transfer will be done at the book value that results in no taxable profits, it should be treated as "acceptable" to the Revenue Department.

You may expect that most of the conditions adopted during the 1997 financial crisis may be seen again in the new regulation to be announced shortly by the Revenue Department. Some even expects that the condition could be tightened by defining the term "partial" transfer to mean the complete transfer of one line of business after which the transferor shall not continue such business line. This is aimed at ensuring that the new legislation will be used for a real corporate restructure, and limiting the abusive level.

Although the wordings of most new legislations are identical to the old law during the first crisis, it took the government such a long time before they were legislated.

Thus, it may be a surprise to many people to learn that most tax incentives last only for one year and to be more specific there are only seven months left - not yet mentioning the period that the taxpayer has to wait for the relevant regulations to be announced first.