The Crown Property Bureau (CPB) is one of Thailand’s most revered yet opaque financial institutions. In recent years, however, there have been moves, including by the CPB itself, to increase transparency and discussion of the CPB in the public sphere. Most recently, at a March seminar sponsored by the Institute of Southeast Asian Studies in Singapore, Associate Professor Dr. Porphant Ouyyanontan, economic historian from Sukhothai Thammathirat Open University’s School of Economics and one of the world’s leading experts on the CPB, recommended that it pay business tax.
It should be noted, however, that CPB’s largest stock holdings are in public firms and that these public firms already pay taxes, so there would be a need to avoid double taxation. Chiefly governed by the Crown Property Act of 1948 (replacing a previous 1936 Act), Dr. Porphant Ouyyanont‘s recommendation on the CPB concerns private holdings, including land holdings, and may require a new act or a separate section on the CPB in the Draft Constitution.
Thailand’s CPB consists of three main pillars, the Siam Cement Public Company Ltd. (SCG; 32% holdings); Siam Commercial Bank (SCB; 23% holdings); and land holdings; the main commercial ones being in Bangkok, as well as a fourth minor pillar, CPB Equity, including Deves Insurance, which mainly engages in insuring the main pillars. The CPB produces an annual report and financial statement, audited by the Auditor-General’s Office, for His Majesty King Bhumibol Adulyadej, who is in effect the president of the company, acting on behalf of the Thai monarchy, which may be seen as the sole shareholder. The financial statement is not available to the public, but between 2008-2010, the CPB earned between 9-11 billion baht per year. Its total assets in a stable year (the land holdings being particularly sensitive to economic fluctuations) are approximately 1 trillion baht or US 37 billion USD.
Siam Cement Group is a conglomerate with interests in cement, paper and chemicals, as well as an investment arm. It dominates the Thai cement industry and together with Insee (Siam City Cement) and TPI Polene functions as an oligopoly. This is arguably justifiable on the grounds that the margins in the industry are slim and in order to develop the domestic Thai industry so that it can compete internationally. SCG comprises approximately 100 companies in five business groups, employs around 24,000 employees, and sells more than 64,000 product items. It earned the CPB 2.5 billion baht in 2010.
Siam Commercial Bank was Thailand’s first bank, founded in 1904, and is technically a private bank. At the end of 2011, SCB's market capitalization was 396 billion baht, making it Thailand's largest financial institution in this year, with assets of 1,878 billion baht. SCB owned 1,100 branches, 114 exchange booths, and 7,678 ATM networks, the highest in the banking sector, in 2011. It is therefore one of Thailand’s “Big Four” banks, together with Bangkok Bank, Krung Thai Bank, and Kasikorn Bank, which together control approximately 40% of the market. Though Thailand’s banking sector is relatively diversified, with over a dozen smaller Thai banks, there have been historical barriers to entry to foreign banks in order to develop the domestic sector. SCB generated 3.4 billion baht for the CPB in 2010.
The CPB owns 41, 000 rai of land, of which 8,300 is in Bangkok, mainly in the historic center, with 40,000 rental contracts, 17,000 of which are in Bangkok. In commercial contracts, the CPB aims for 4% of the appraised valuation as the rental value but adopts this as a very long term target, mainly increasing rents only when leases change hands. The CPB perspective is that 93% of its property is not commercial due to the nature of the holdings being government properties or slums. The CPB earned 2.5 billion baht from its properties in 2010.
Historically, the CPB has played a role in supporting His Majesty’s Philosophy of the Sufficiency Economy (PSE), with all three main pillars of the CPB leading the field in the area of corporate social responsibility (CSR), in particular its land holdings, the management of which has wrestled for some time with the issue of administering land rents for government buildings, private developments, and in particular slum communities. In the area of slum development, the CPB has partnered with the Community Development Institute and does not seek to maximize rents. Illustrating the exemplary role played by the SCG in the area of CSR, most companies have been accredited ISO 9002 (certification for quality management), ISO 14001 (certification for environmental management), and TIS 18001 (certification for occupational health and safety management), many being the first in their field to do so. Another good example of CSR is SCG’s whistleblower system.
At the March seminar, Dr. Porphant Ouyyanont pointed out, “Although the quantity of GDP growth in Thailand has been impressive, the quality of Thai capitalist firms has remained poor… As Thailand continues to experience rapid globalization, market competition has become increasingly fierce… The CPB should therefore be taxed and provide assistance to prospective businesses.”
This advice is particularly salient as recently the Bank of Thailand reduced the economic growth forecast for 2015 from 4% to 3.8%, and Kasikorn Research Centre cut its forecast to 2.8% on the assumption of flat export growth. Furthermore, although Thailand’s economy survived the 2007-2008 global economic crisis, in no small part due to the financial rigor imposed on its banking system by the IMF as a condition of re-floating the country’s economy, the Klong Chan Credit Union scandal and news of recent pyramid schemes cast a cloud on the financial institutions sector. In addition, it has been noted that the global financial services sector suffers a 10 year cycle of boom and bust due to the battle between regulators and free market capitalism, meaning Thailand only has a couple of years to prepare its private sector for the next downturn.
The CPB survived the last major downturn in Thailand, the 1997 collapse of the economy, by being put into state-backed special administration with highly advantageous terms and the dedicated attention of some of Thailand’s leading technocrats. It is obviously preferable that the CPB both become more competitive and encourage the markets it operates in to become more competitive in order to survive the next bust on its own merits.
The CPB is more progressive than some realize. While being wholly tax exempt according to the 1948 Act, it has chosen in the case of VAT, local development tax, and house and building tax to pay these taxes. Interested readers may also note that there is a chapter on the CPB in the 2012 book King Bhumibol Adulyadej: A Life’s Work, which is available in full from the CPB’s website at this link and which served as the source for the income estimates for this article.
The CPB has for some time supported a land and/or property tax, providing high-level moral support for the interim military government’s flagship legislative act in this area, which has unfortunately temporarily stalled. However, it should be noted that applying additional taxes to the estimated 93% of land holdings which are government buildings or slum communities would only increase the government’s expenditure or worsen the plight of slum communities. As such, any new taxes incurred by the CPB should be subject to judicious review and phased in over several years.
Finally, moves by the Crown Property Bureau towards further transparency are obviously beneficial to the efficiency of the Thai economy, and if mandated via the announcement of a new organic law or a specific section in the Draft Constitution, the CPB could provide high-level financial statements on income and expenditure as part of annual report to the public by 2020, moving towards full financials by 2025.