Compensating Through the Chaos: How the Thai Government is Helping Businesses Survive the Pandemic

[Irene Ittisarnronnachai is a recent law graduate of Thammasat University (First Class Hons.). She is currently an associate at Weerawong, Chinnavat & Partners Ltd., one of the leading law firms in Thailand. She can be reached at irene.i@weerawongcp.com]

 

When the COVID-19 had fully hit Thailand during mid-March and early April, Thailand had already been suffering from a rising unemployment rate and a slowing economy. On 26 March 2020, the government had publicly announced the use of the Emergency Decree B.E. 2548 (2005) in hopes to decrease the numbers of infected people in the country. The rapid changes in societal norms resulted in businesses facing a sudden shortage in their liquidity and leaving some businesses to close down.

The wave of pandemic had worsened Thailand’s already stagnant economy. In order to save the affected businesses, the government issued two types of measures: (i) measures that reduce the financial burden of businesses and (ii) measures that assist the financial liquidity of the business.

 

1. Reducing financial burdens – Employees, a major financial cost of business owners?

Due to the slowing economy, several businesses are unable to meet their financial obligations and are desperately trying to find solutions to decrease their financial burdens. In order to assist business owners, the government had issued three phases of measures that would reduce the financial burdens. These measures include, but are not limited to extension of corporate tax submission deadline from 31 March 2020 to 31 August 2020; temporarily cessation of bank loan principal and interest repayment (only applicable to SMEs); and providing monetary relief to employees.

It should be noted that in order to survive, businesses had to reduce their costs. One of the first cost that several businesses eliminated was the employees’ wage. There are typically two ways that businesses have approached this: dismissal of the employee or partial payment of 75% of the employee’s wage during the period that the business is ‘temporarily closed’.

However, under the Labor Protection Act B.E. 2541 (1998) (“LPA”), employees who are dismissed are entitled to a certain amount of compensation depending on the period that they have been with the company and multiplied by the average wage they receive according to Section 118 of LPA. In order to avoid paying compensation (especially if the company decides to dismiss a long-term employee), several companies requested their employee to ‘voluntarily’ resign. As the employer is not required to compensate employees who voluntarily resign, this is a preferable method but it is unfair as the employee receives either little or no compensation.

An alternative option is for the employer to reduce the wage of the employee by 75% as they choose to temporarily cease their operations. In case the temporary closure of the company is due to a force majeure, the employer would not be required to make the 75% compensation to the employee. Further, the Labour Welfare and Protection Office Area 3 had clarified that the COVID-19 outbreak is considered as an event of force majeure, exempting the effected employers (i.e. hotels, night clubs, restaurants) to payment of such wage.

Understanding the reluctance for payment of an employee’s wage, and in order to alleviate the financial burdens from the employers, the government had issued measures to support the employees. According to the Social Security Act B.E. 2533 (1990) (“SSA”), employees who are registered in the Social Security System are considered to be an ‘insured’ and entitled to benefits under the SSA are entitled to the following compensation depending on the reason of unemployment:

a. 62% of their daily wages but for the period of no longer than 90 days if the unemployment was due to unforeseen events/force majeure (not more than THB 6,300 per month);

b. 45% of their daily wages but for a period of no longer than 90 days if the unemployment was due to the employee’s resignation (not more than THB 6,750 per month); and

c. 70% of their daily wages but for a period of no longer than 200 days if the unemployment was due to termination of employment by the employer (not more than THB 7,500 per month).

However, it is important to note that the compensation is provided only to an ‘insured’ employee in accordance with the definition of Section 78 of the SSA who made the required contributions to the Social Security Funds for at least 6 months within the period of 15 months prior to the occurrence of unemployment.

 

2. Increasing financial liquidity – Revival of the tourism industry

In October 2019, the World Bank had estimated Thailand’s GDP at 2.9% but after COVID-19 outbreak had occurred, this has been revised to -3.0% to -5.0%. Once the strict measures had been implemented calling for several businesses that are ‘at risk to COVID-19 infections’ to temporarily close, e.g. massage parlor, hairdressers, malls and restaurants, many business owners suffered loss of profit which resulted in the business to face liquidity issues.

One of the sectors that was heavily impacted due to the pandemic is the tourism industry. Thailand depends heavily on tourism and exports with 14% of its GDP deriving from tourism alone, the strict lockdown measures that was implemented on 4 April 2020 that disallowed for commercial flights to enter into Thailand meant little to no profit to the industry.

Even before the implementation of the lockdown measures, Thailand was facing a slowing growth in the tourism sector in the beginning for 2020 as the numbers of Chinese tourists had declined due to the COVID-19 outbreak in China. Chinese tourists account for a total of 27.6% of the tourists that visited Thailand. Chinese tourists are also known as ‘big spenders’, typically being spotted in luxury malls such as Paragon and Emporium, and usually forming queues in front of brands named shops such as Louis Vuitton or Chanel.

In order to increase the financial liquidity of businesses, the government had implemented  several measures including but not limited to providing loans with lower rate of interest for a period ranging from 3 to 6 months. Additionally, measures specific to the tourism sector had recently been approved. The measures include subsidies for the cost of transportation, hotel and food. It should also be acknowledged that the measures also include a special package for medical staffs to have all their travel costs covered (but not exceeding THB 2000 per person).

Currently, the government had not provided measures with any direct form of compensation to increase a business’ financial liquidity.

 

Final verdict?

Even with an abundance of measures implemented by the government, it might come as a surprise that the result of a survey conducted by Wunderman Thompson revealed that Thailand had the highest percentage of population (up to 46%) in Asia which believed that their country’s economy would take a very long time to rebound after COVID-19, in comparison with China at 10% and Singapore at 16%. However, this may be due to the overall confidence in the current government rather than the effects of the implemented measures.

Although the lockdown measures had been relaxed since the beginning of June, people are reluctant to spend their money during uncertain times. With the lack of consumer expenditure, businesses continue to financial liquidity issues due to lack of profit. However, there are high hopes in the newly implemented tourism measure, especially as Thailand economy strives on this sector but it is still to be decided whether this measure will make up for the lack profit from foreign tourists.


 

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