1. What is economic zoning? History of
economic zoning in Thailand and
relate it with domestic and Foreign
Direct Investment (FDI).
by
Choen Krainara
Doctoral Student
Regional and Rural Development Planning Field of Study
School of Environment, Resources and Development
Asian Institute of Technology
Bangkok, Thailand
March 2009

2. What is economic zoning? History of economic zoning in
Thailand and relate it with domestic and Foreign Direct
Investment (FDI).
1. Definition of Economic Zoning
According to European Environment Agency (2009), Economic Zoning is a land-use
planning design or control where specific types of businesses or private sector
investment are encouraged within designated boundaries.
2. The History of Economic Zoning in Thailand
2.1 Rationale of Spatial Division of Economic Zoning
Rapid industrialization has led Bangkok and its extended vicinities to become city
primacy. Bangkok metropolitan plays important roles as both commercial and
administrative centers of Thailand. The growth of Bangkok and its vicinities have
become densely concentrated causing highly imbalanced spatial development as well as
posing environmental degradation e.g. air and water pollution. In addressing this
challenge, Royal Thai Government has implemented policies on investment promotion
since 1993. Investment zones have then been used as a means to support government
policies in decentralizing industrial base from the Bangkok Metropolitan Area to the
peripheral provinces. In response, the Board of Investment subsequently announced
"Policies and Criteria for Investment Promotion" in April, 1993, creating three
Investment Promotion Zones throughout Thailand which were distinguished by
economic factors i.e., the level of income and the availability of infrastructure in each
province (BOI, 2009). The respective Investment Promotion Zones were as follows:
 Zone 1 consists of 6 central provinces with high income and good
infrastructure: Bangkok, Samut Prakan, Samut Sakhon, Pathum Thani,
Nonthaburi and Nakhon Pathom provinces.
 Zone 2 comprises of 12 provinces. They are Samut Songkhram, Ratchaburi,
Kanchaburi, Suphanburi, Ang Thong, Ayutthaya, Saraburi, Nakhon Nayok,
Chachoengsao, Chonburi, Rayong and Phuket
 Zone 3 includes the backward regions covering the remaining 58 provinces
with low income and less developed infrastructure. All border provinces are
located in this zone; thus all areas in the Zone 3 provinces are designated as
Investment Promotion Zones.
Please see details of investment zones in Map 1 below.
Map 1 Displaying Investment Promotion Zones in Thailand

3. Source: Board of Investment of Thailand, retrieved from
http://www.boi.go.th/english/about/boi_privileges_by_location.asp, retrieved on 24
March 2009
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4. The financial crisis in the middle of 1997 changed the Thai economy. As a result, tax
collection was below target and public debts increased drastically affecting the fiscal
position of the government. Moreover, the global economic outlook and investment
environment had undergone change. In 2000, the Board of Investment consequently
adjusted Thai investment promotion policies and criteria for granting tax privileges in
order to respond to the future economic and investment prospects.
2.2 Basic Investment Incentives
The BOI offers two kinds of incentives to promoted projects, regardless of location.
These are:
 Tax-based incentives include exemption or reduction of import duties on
machinery and raw materials, and corporate income tax exemptions.
 Non-tax incentives include permission to bring in foreign workers, own land
and take or remit foreign currency abroad.
2.3 Priority Investment Activities
The BOI places priority on promoting the following major types of projects:
 Agriculture and agricultural products
 Direct involvement in technological and human resource development
 Public utilities and infrastructure
 Environmental protection and conservation
 Targeted industries
The BOI shall announce the list of priority activities or industries. Such projects will be
entitled to the following privileges:
 Exemption of import duty on machinery regardless of location
 Corporate income tax exemption for eight years, regardless of location
 Other privileges entitled for each Investment Zone.
2.4 BOI Privileges by Location
Privileges Investment Promotion Zones are classified as follows:
1) Projects in Zone 1 are granted:
 50 per cent reduction of import duty on machinery that is subject to import duty
of not less than 10 percent.
 Corporate income tax exemption for 3 years for projects located within
industrial estates or promoted industrial zones, on the condition that such a
project with capital investment of 10 million baht or more (excluding cost of
land and working capital) obtains ISO 9000 or similar international standard
certification within 2 years from its start-up date, otherwise the corporate
income tax exemption will be reduced by 1 year.
 Exemption of import duty on raw or essential materials used in the
manufacturing of export products for 1 year.
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5. 2) Projects in Zone 2 (excluding Laem Chabung Industrial Estate and industrial
estates and promoted industrial zones in Rayong Province) are granted:
 Exemption of import duties on machinery for projects located in industrial
estates or promoted industrial zones, and 50 per cent reduction of import duty on
machinery that is subject to import duty of not less than 10 per cent for projects
located outside industrial estates or promoted industrial zones.
 Corporate income tax exemption for 3 years, increased to 7 years for projects
located within industrial estates or promoted industrial zones, provided that such
a project with capital investment of 10 million baht or more (excluding cost of
land and working capital) obtains ISO 9000 or similar international standard
certification within 2 years from its start-up date, otherwise the corporate
income tax exemption will be reduced by 1 year.
 Exemption of import duty on raw or essential materials used in the
manufacturing of export products for 1 year.
3) Projects in Zone 3 (including Laem Chabung Industrial Estate and industrial
estates and promoted industrial zones in Rayong Province) are granted:
 Exemption of import duty on machinery.
 Corporate income tax exemption for 8 years provided that a project with capital
investment of 10 million baht or more (excluding cost of land and working
capital) obtains ISO 9000 or similar international standard certification within 2
years from its start-up-date, otherwise the corporate income tax exemption will
be reduced by 1 year.
 Exemption of import duty on raw or essential materials used in the
manufacturing of export products for 5 years.
 Deduction from net profit of 25 percent of the project's infrastructure installation
or construction costs in addition to normal depreciation, and such deductions can
be made from the net profit of one or several years within 10 years form the date
of first revenue derived from the promoted activity.
4) Projects located in industrial estates or promoted industrial zones in 36
provinces : (Chai Nat, Chanthaburi, Chiang Mai, Chiang Rai, Chumphon,
Kamphaeng Phet, Khon Kaen, Krabi, Lamphang, Lamphun, Loei, Lop Buri, Mae
Hong Son, Mukdahan, Nakhon Ratchasima, Nakhon Sawan, Nakhon Si
Thammarat, Phangnga, Phattalung, Phetchabun, Phetchaburi, Phitsanulok, Pichit,
Prachin Buri, Prachuab Khiri Khan, Ranong, Sa Kaew, Sing Buri, Songkhla,
Sukhothai, Surat Thani, Tak, Trang, Trat, Uthai Thani, and Uttaradit) as well as
Laem Chabung Industrial Estate and industrial estates or promoted industrial
zones in Rayong province are granted the tax and duty privileges extended under
BOI Policies and the following:
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6.  50 per cent reduction of corporate income tax for 5 years after the exemption
 Double deduction from taxable income of transportation, electricity and water
costs for 10 years from the date of first revenue derived from promoted activity.
 75 percent import duty reduction on raw or essential materials used in
manufacturing for domestic sales for 5 years, based on annual approval (This
incentive is not available to projects in Laem Chabung Industrial Estate and
industrial estates or promoted industrial zones in Rayong province.)
5) Projects located in 22 provinces: Amnat Charoen, Buri Ram,Chaiyaphum,
Kalasin, Maha Sarakham, Nakhon Phanom, Nan, Narathiwat, Nong Bualamphu,
Nong Khai, Pattani, Phayao, Phrae, Roi Et, Sakhon Nakhon, Sathun, Si Sa Ket,
Surin, Udon Thani, Ubon Ratchathani, Yasothon, and Yala are granted the tax
and duty privileges extended under BOI Policies and the following:
 50 per cent reduction of corporate income tax for 5 years after the exemption
period;
 Double deduction from taxable income of transportation, electricity and water
costs for 10 years from the date of first revenue derived from promoted
activities;
 75 percent import duty reduction on raw or essential materials used in
manufacturing for domestic sales for 5 years, based on annual approval, for
projects located in industrial estates or promoted industrial zones.
It should be noted that in each zone the maximum value of a project's corporate income
tax exemption is 100 percent of its investment capital, unless otherwise specified.
Please find a summary of BOI Privileges by Investment Promotion Zone in Table 1.
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7. Table 1: Summary of BOI Privileges by Investment Promotion Zone
(Effective for applications submitted during 1 January 2005 - 31 December 2009)
Granting Tax and Zone 1 Zone 2 Zone 3 Zone 3
Duty Privileges 36 Provinces and Laem 22 Provinces
Chabang Industrial Estate
and Industrial Estate
/Promoted Industrial Zone in
Rayong Province
Industrial Outside Industrial Estate / Outside Industrial Outside Industrial Outside
Estate/ Industrial Promoted Industrial Estate/ Industrial Estate/ Industrial
Promoted Estate Industrial Zone Estate Promoted Estate Promoted Estate
Industrial (Excluding Laem Industrial Industrial
Zone Chabang Zone Zone
Industrial Estate
and Industrial
Estate/Promoted
Industrial Zone in
Rayong Province)
Import duty on 50 % 50 % Exemption 50 % Exemption Exemption Exemption Exemption
machinery reduction reduction reduction
Corporate income tax 3 years - 7 years* 3 years 8 years 8 years 8 years 8 years
Exemption (Including Laem
Chabang Industrial
Estate/Promoted
Industrial Zone in
Rayong Province
Remarks: √ = Shall be granted privileges.
- = Shall not be granted privileges.
* = (For all applications submitted during January 1, 2005 to December 31, 2009)
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8. Granting Tax and Zone 1 Zone 2 Zone 3 Zone 3
Duty Privileges 36 Provinces and Laem 22 Provinces
Chabang Industrial Estate
and Industrial Estate
/Promoted Industrial Zone in
Rayong Province
Industrial OutsideIndustrial Estate / Outside Industrial Outside Industrial Outside
Estate/ Industrial
Promoted Industrial Estate/ Industrial Estate/ Industrial
Promoted Estate Industrial Zone Estate Promoted Estate Promoted Estate
Industrial (Excluding Laem Industrial Industrial
Zone Chabang Zone Zone
Industrial Estate
and Industrial
Estate/Promoted
Industrial Zone in
Rayong Province)
Import duty on raw or Exemption Exemption Exemption Exemption Exemption Exemption Exemption Exemption
essential materials used for 1 year for 1 year for 1 year for 1 year for 5 years for 5 years for 5 years for 5 years
in manufacturing of
export products
Double deduction from - - - - √ - √ √
transportation
,electricity and water
costs
50 percent reduction of - - - - √ - √ √
corporate income tax
for 5 years
Remarks: √ = Shall be granted privileges.
- = Shall not be granted privileges.
* = (For all applications submitted during January 1, 2005 to December 31 2009)
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9. Granting Tax and Zone 1 Zone 2 Zone 3 Zone 3
Duty Privileges 36 Provinces and Laem 22 Provinces
Chabang Industrial Estate
and Industrial Estate
/Promoted Industrial Zone in Rayong
Province
Industrial Outside Industrial Estate / Outside Industrial Outside Industrial Outside
Estate/ Industrial Promoted Industrial Estate/ Industrial Estate/ Industrial
Promoted Estate Industrial Zone Estate Promoted Estate Promoted Estate
Industrial (Excluding Laem Industrial Industrial
Zone Chabang Zone Zone
Industrial Estate
and Industrial
Estate/Promoted
Industrial Zone in
Rayong Province)
Deduct the project’s - - - - √ √ √ √
infrastructure
installation or
construction cost
Duty on raw or - - - - 75% reduction for 5 - 75% -
essential materials years*, with year-by year reduction
used in the approval (Excluding Laem for 5
manufacturing of Chabang Industrial years*,with
domestic sales Estate and Industrial year-by
Estate/ Promoted Industrial year
Zone in Rayong Province) approval
Remarks: √ = Shall be granted privileges. - = Shall not be granted privileges.
* = (For all applications submitted during January 1, 2005 to December 31, 2009)
Source: http://www.boi.go.th/english/about/boi_privileges_by_location.asp, retrieved on 25 March 2009
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10. 2. 5 State of Investment in Thailand
1) Overall Investment
Investment approvals are performed by related government agencies. Domestic
investment is mainly granted approval by Ministry of Industry and Ministry of
Commerce, while FDI approval is mostly carried out by the Office of the Board of
Investment. Investments consisted of capital for both start-up and expansion phase.
Both domestic investment and Foreign Direct Investment (FDI) play important role in
the Thai economy as it greatly help generate jobs and income for the Thai people.
During the 9-years period from 2001-2009 (January-February), accumulative domestic
investment amounted at 5.08 trillion Baht, while FDI in-flows to Thailand which mostly
induced by the above outlined tax and nontax incentives accounted for at 2.74 trillion
Baht. The aggregate domestic investment and FDI in-flows amounted as much at 7.83
trillion Baht. In terms of annual average of investment, domestic investment
represented at 635,778 million Baht, whereas FDI in-flows totaled at 343,056 million
Baht.
Regarding the patterns of investment, both domestic investment and FDI had shown a
similar movement. Domestic investment kept increasing from 2001 to 2005 and then
significantly decreased since 2007. The major industries invested were food, textile and
garment, steel, automobile and parts, cement, electrical appliances and electronics, etc.
(Office of Industrial Economics, 2009). While FDI increased at smaller pace of that
domestic investment with highest investment in 2005, and then varied and started
declining in 2008. The major industries invested were automobile and parts, services
e.g. hotel and utilities for industries, electronics, steel, chemicals, agro-industries,
machinery, and transportation parts, etc. The major investors were from Japan,
Singapore, China, Malaysia, Indonesia, United States of America, the Netherlands,
Germany, England, and India, etc. (BOI, 20009). The trend of both domestic investment
and FDI is notably moving downward resulting from global and domestic economic
recession. As a result, the total investment in the whole Kingdom considerably began
falling since 2008. This reflected the overall national economic performance which
should cautiously be taken care through responsive policies/strategies and measures in
order to maintain economic growth, full employment and prosperity. Please see details
of Domestic and Foreign Direct Investment Values in Thailand in Figure 1 below.
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11. Figure 1: Domestic and Foreign Direct Investment Values in Thailand
During 2001-2009 (January to February)
1,600,000
1,400,000
1,200,000
1,000,000
Million Baht
800,000
600,000
400,000
200,000
0
2001 2002 2003 2004 Year 2005 2006 2007 2008 2009 ( Jan-
Feb)
Zone 1 (FDI) Zone 2 (FDI)
Zone 3 (FDI) Total Foreign Direct Investment
Total Domestic Investment Total Investment in the Whole Kingdom
Source:
Data on Total Domestic Capital Investment for the year 2001 to 2008 was from Office
of Industrial Economics, Ministry of Industry of Thailand, retrieved from
http://www.oie.go.th/industrystatus1/r_OctDec51/r_OctDec51_1.html, retrieved on 25
March 2009.
Data on Foreign Direct Investment for the year 2001 to 2006 was from Office
of Industrial Economics, Ministry of Industry of Thailand, retrieved from
http://www.oie.go.th/industrystatus1/r_OctDec51/r_OctDec51_1.html, retrieved on 25
March 2009.
Data on Foreign Direct Investment for the year 2007-2009 (January-February) obtained from
Office of the Board of Investment, Thailand.
Remark: Data on both Domestic Investment and Foreign Direct Investment for the year 2004 were
represented with 11 months.
It is evident contribution of investments towards national economic growth and
development. During 2001-2007, approximate annual average at 14.55 % of domestic
investment contributed to the national Growth Domestic Product (GDP), whereas
around annual average at 5 % of FDI shared to GDP. Hence the magnitude of domestic
investment was larger than FDI for 2.91 times. Thailand should therefore strive to
diversify national economy based on two-pronged approach through fostering domestic
investment and expanding FDI. Rural industrialization could meaningfully be further
intensified in order to promote domestic investment and employment in rural area in
order to support sustainable rural development.
2) Share of Foreign Direct Investment by Investment Zones
Following to the Government policy on designating investment zones, it was proved
successful in terms of decentralizing industries out of Bangkok and vicinities. Yet, the
investments were shifted to largely concentrate in zone 2, which dominated by the
Eastern Seaboard Development region-Chachoengsao, Chonburi and Rayong provinces-
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12. . This is apparent that during 2007-2009 (January-February) the annual average share of
FDI in zone 2 accounted for as high at 69 % of total FDI, followed by zone 3 at 19 %
and zone 1 at 14 %, respectively. As a result, investment in zone 2 left behind the
investment gaps as higher than zone 1 for 4.99 times and zone 3 for 4.1 times.
Furthermore, combining of investments in zone 1 and zone 2, the magnitude of
concentration of investments highly reached at for 83 %. It is notable that the
dominance of zone 2 is also widening interregional disparities in Thailand. Therefore, it
is crucial to rationally more divert of both FDI and domestic investment toward zone 3
in order to promote equitable benefits of investment for development. Please find details
of share of foreign direct investment during 2007-2009 (January-February) in Figure 2.
100
90
80
70
Percentage
60
50
40
30
20
10
0
Year
2007 2008 2009 ( Jan-Feb)
Zone 1 Zone 2 Zone 3
Source: Office of the Board of Investment of Thailand
Figure 2: Share of Foreign Direct Investment Divided by Investment Zones
During 2007 To 2009 (January-February)
3) Share of Domestic Investment to Share of Foreign Direct Investment
In 2001, the share of total domestic investment increased to 72.75 % and much declined
to 61.74 % in 2003, and then from 2004-2008 its annual average fluctuated at around 67
%. The tendency may continue varying. While the share of FDI slightly increased at
27.25 % in 2001, then from 2003-2008 its annual average varied at around 36.63 %.
The trend may keep on changing. During 2001-2008, the annual average share of
domestic investment accounted for 66.18%, while the annual average share of FDI
represented at one-thirds of total investment in the Kingdom. It is understandable that
both domestic and FDI will be moving in the similar trend. It is important to note that
Thailand still needs FDI in-flow in order to help generate employment and income as
well as cultivating technology transfer and spillover effects, human capital and skill
formation and integration of national trade with the global economy. It is also vital for
Thailand to attract FDI by providing quality infrastructure and human capital. Strong
backward linkages with Multinational Enterprises should be enhanced so that win-win
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13. benefits of FDI can be ultimately realized. Please find details of share of domestic
investment to share of foreign direct investment in Thailand during 2001 to 2008 in
Figure 3 below.
100
90
80
70
60
Percentage
50
40
30
20
10
0
2001 2002 2003 2004 2005 2006 2007 2008
Total Foreign Direct InvestmentYear Total Domestic Investment
Source: Investment statistics of various years from Office of Industrial Economics and
Office of the Board of Investment of Thailand
Figure 3: Share of Domestic Investment to Share of Foreign Direct Investment in
Thailand During 2001 To 2008
4) Industrial development along Thai border area
As a result of promoting investment particularly in Zone 3, there is a prominent
investment platform along Thailand-Myanmar border area. It is located in Maesod
district, Tak province, which plays a significant role as major industrial development
location in Northern part of Thailand. Maesod district is home to labor-intensive
industry particularly for garment productions. In 2003, Tak province had 464 factories.
Maesod alone hosted 235 factories, which accounted for 51% of the whole province
with total investment capital at 1,500 millions Baht, and it generated export values at
3,100 millions Baht per year, (NESDB). The key labor-intensive industries were textile
and garment, canned food, wood furnitures, jewelry and accessories. In addition, there
was increasing emergence of service industries e.g. garage and car maintenance shops,
etc. The principal reason for investors in locating these industrial plants in Maesod was
to take advantage of cheap labor from Myanmar and investment incentives in Zone 3. In
2003, approximate 10,000 Myanmarnese workers were employed in Maesod district.
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14. Conclusion
Domestic investment plays major role while Foreign Direct Investment acts as
complementing role in joint contribution to national economic growth, income
generation, employment and development. Adopted Investment zones have been quite
successful in dispersing industries out of Bangkok. However, good infrastructure has
led to such concentration of industries be densely located in zone 2 and parts of zone 1
which is negative to zone 3. It is thus challenging for Thailand on how to further
distribute investment activities to regional provinces in zone 3. Border industrialization
in the form of border economic zone can be one of the means to spread out investment
activities to border regions. This is believed to not only help minimize interregional and
intra-regional disparities in Thailand but also bring about opportunities to share benefits
with border cities in neighbouring countries especially Myanmar, Lao PDR and
Cambodia timely in response to increasing regionalization. Likewise, Thailand should
also continue diversifying investments in order to promote equitable competiveness of
both rural and urban economies.
References
Board of Investment. (2009). Statistics on Foreign Direct Investment for the Year 2007,
retrieved from http://www.boi.go.th, on 24 March 2009.
Board of Investment. (2009). Statistics on Foreign Direct Investment for the Year 2008,
retrieved from http://www.boi.go.th, on 24 March 2009.
Board of Investment. (2009). Statistics on Foreign Direct Investment for the Months of
January to February, 2009, retrieved from http://www.boi.go.th, on 24 March 2009.
http://www.boi.go.th/english/about/boi_privileges_by_location.asp, retrieved on 24
March 2009.
http://www.boi.go.th/english/about/statistics_investment.asp, retrieved on 25 March
2009.
http://glossary.eea.europa.eu/terminology/concept_html?term=economic%20zoning,
retrieved on 24 March 2009.
http://www.nesdb.go.th/Default.aspx?tabid=94, retrieved on 27 March 2009.
http://www.oie.go.th/industrystatus1/r_OctDec51/r_OctDec51_1.html, retrieved on 25
March 2009.
http://www.oie.go.th/industrystatus1_th.asp, retrieved on 25 March 2009.
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