Thailand is reviewing its automobile excise tax structure as the government seeks to respond to changes in the automotive industry, retain investment and maintain the country's role as a regional production and export base for electric and environmentally friendly vehicles.

Prime Minister's Office spokesperson Rachada Dhanadirek said Deputy Prime Minister and Finance Minister Ekniti Nitithanprapas had instructed the Excise Department to review vehicle tax rates and related criteria to ensure competition while supporting businesses that invest, manufacture vehicles and components, and create employment in Thailand.

The review will cover the automotive sector, including battery electric vehicles (BEVs), hybrid vehicles and internal combustion engine (ICE) vehicles. It will also consider free trade agreements (FTAs) that provide preferential tariff treatment for imported fully built vehicles, as the government seeks to balance the domestic market, investment and local production.

Rachada said the restructuring was not intended simply to raise or lower tax rates but formed part of a broader strategy to determine the future direction of Thailand's automotive industry.

CO2 emissions to become key tax benchmark

The Finance Ministry is considering lower excise taxes for manufacturers that invest in production bases in Thailand, use domestically produced raw materials or components, and have begun manufacturing vehicles for export. The proposed incentives would be available to both existing and new manufacturers of ICE, hybrid and electric vehicles.

Excise Department Director-General Pornchai Thiraveja said the department plans to use carbon dioxide (CO2) emissions as the main benchmark for classifying vehicles and determining tax support, rather than limiting incentives to specific vehicle technologies.

The approach is intended to reduce the impact on existing ICE manufacturers while encouraging the automotive industry to shift towards lower-emission energy sources and technologies.

Under the proposed structure, incentives would not be limited to BEVs, with conventional vehicle manufacturers also able to transition towards hybrid technologies, including hybrid electric vehicles (HEVs), plug-in hybrid electric vehicles (PHEVs) and extended-range electric vehicles (EREVs). The Excise Department said the approach would allow the industry to transition while limiting the impact on the competitiveness of existing automotive manufacturers and employment levels.

"This approach will allow assembly plants and parts manufacturers in the traditional combustion-engine vehicle industry to apply their existing skills and capabilities as they gradually make the technological transition, while helping to retain the existing workforce," Pornchai said.

The government also wants vehicle imports to be linked to longer-term investment commitments. Under the proposed policy, manufacturers could initially introduce new models and advanced technologies to Thailand for research, market testing and knowledge development before progressing towards investment and full-scale domestic production.

Thailand targets EV production and exports

The tax reform is intended to build on Thailand's existing automotive manufacturing and export base and increase its role in regional EV and environmentally friendly vehicle production and exports. Thailand is often referred to as the "Detroit of Asia".

The government aims to increase domestic production capacity, expand export markets and strengthen Thailand's position in regional automotive supply chains.

Rachada said previous EV incentive measures had contributed to market development and investment attraction, but government policy now needed to change as the industry entered a new phase.

"In the past, measures to promote EVs played a significant role in creating the market and attracting investment to Thailand. As the industry enters its next phase, government measures must be adjusted to keep pace with changing conditions so that growth in the automotive industry benefits Thai people more," she said.

The government also wants to upgrade Thailand's automotive supply chain by helping local parts manufacturers move beyond basic component production and assembly towards higher-value parts, key technologies and advanced systems used in modern vehicles.

This would involve greater cooperation with foreign investors to facilitate technology transfer, improve workforce skills and increase domestic participation in higher-value supply chains. The policy is also intended to preserve and create manufacturing jobs while increasing opportunities for Thai businesses and parts manufacturers. Rachada said the strategy would promote competition while giving consumers access to different vehicle technologies.

Review to include batteries and clean-energy products

The Excise Department is also reviewing the tax structure for products associated with environmental protection and clean energy, particularly components used in vehicle manufacturing. The review will not be limited to automotive batteries and could also cover other products that the department determines can contribute to reducing environmental impacts from the beginning of the production process.

"The Excise Department places emphasis on clean energy. Anything that creates less pollution is considered clean energy. We will focus on CO2, and whatever results in the lowest CO2 emissions is what we should support," Pornchai said.

He explained that the EV 3.0 and EV 3.5 incentive programmes were introduced to encourage consumers to become familiar with electric-vehicle technology while requiring participating manufacturers to establish production facilities in Thailand rather than relying solely on imports of fully built vehicles.

The programmes have attracted around eight to 10 major EV manufacturers to establish production bases in the country, including BYD and MG. Around 170,000 electric vehicles are currently in use domestically.

Cumulative investment in the EV and automotive-parts industries has reached THB 140 billion (US$ 4.23 billion), with potential production capacity of up to 380,000 vehicles a year and more than 25,000 jobs created.

The Finance Ministry and Excise Department are working on the details of the revised tax structure and related regulations. The changes are expected to reflect current market conditions and the long-term direction of Thailand's automotive industry.