Thailand will implement revised tax incentives for manufacturers of plug-in hybrid electric vehicles (PHEVs), with the updated excise tax structure scheduled to take effect in 2026.

The measure constitutes a modification of the country's existing tax policy for PHEVs.

New structure

The revision of the fiscal policy for PHEVs was initially announced in March 2024, with formal approval granted later. The updated approach restricts tax incentives to vehicles produced within Thailand.

While trade-in schemes and other incentives for electric vehicle (EV) manufacturers have been discussed, the new policy applies a range-based classification for PHEVs.

Vehicles with an electric-only range of 80 kilometres or more will be taxed at 5%. Those with a range below 80 kilometres will incur a 10% tax rate.

Previously, tax incentives were determined by a fuel tank capacity limit of 45 litres. The updated criteria are intended to enable broader design options, accommodate use in areas with limited infrastructure, and reflect real-world emissions rather than compliance with hybrid classification standards.

The revised policy also introduces a tiered structure, under which vehicles with larger battery capacities and higher energy density are eligible for reduced tax rates.

This policy aligns with the "30@30" strategy, which aims for 30% of total domestic vehicle production to consist of electric vehicles by 2030. The Government considers PHEVs to be a transitional technology in the progression toward full electrification.

A possible solution

Thailand's automotive market has experienced a decline since the COVID-19 pandemic. The most pronounced drop occurred in 2024, when production and sales targets were revised twice.

Although some recent improvement has been reported, Surapong Paisitpatanapong, spokesperson for the Federation of Thai Industries (FTI) Auto Club, stated that total vehicle manufacturing may not reach the year-end target.

Research conducted by the Kasikorn Research Centre projects that only 565,000 vehicles will be sold in 2025, and anticipates the closure of approximately 50 dealerships by the end of the year.

Rising operational costs and reduced consumer demand have placed financial pressure on both manufacturers and dealerships.

Analysts expect Chinese automotive firms to remain relatively stable, while Japanese, Western, and South Korean manufacturers may encounter more significant difficulties.

The performance of the automotive sector is closely tied to the national economic context, particularly elevated levels of household debt.

As debt increases, financial institutions have tightened lending criteria, particularly for vehicle loans.

The FTI has also expressed concern regarding a forthcoming 36% tariff to be imposed by the United States. The enforcement and consequences of this tariff may influence Thailand's vehicle export performance.