Thailand Overhauls Vehicle Excise Tax to CO2-Based System, Incentivizing Local EV Production

Thailand's Finance Ministry and Excise Department are implementing a restructured vehicle excise tax scheme, shifting the taxation benchmark from fuel type or engine size to carbon dioxide emissions, according to the official Ministerial Regulation on Excise Tax Rate Schedules (No. 46). The policy applies to vehicles purchased from January 1, 2026, through December 31, 2032, and aims to encourage manufacturers of internal combustion engine vehicles, hybrids, and electric vehicles to adopt cleaner technologies and expand domestic manufacturing.

Under the new framework, Battery Electric Vehicles benefit from a reduced excise tax rate of 2 percent, down from 8 percent, per Excise Department records. Conversely, electric pickup trucks face an excise tax increase from 0 percent to 2 percent. Internal combustion engine vehicles and hybrids face progressively higher tax rates determined by their CO2 emissions output, culminating in a maximum rate of 50 percent for luxury cars and supercars with engine capacities exceeding 3.0 liters.

Running concurrently with the tax overhaul, the government's EV 3.5 incentive package, launched in late 2025, provides duty exemptions of up to 40 percent on completely built units for 2024 through 2025, alongside subsidies tied to battery size and vehicle price. To maintain these incentives, manufacturers operating under the package must meet a 1:2 production-to-import ratio in 2026, which increases to 1:3 in 2027. Additionally, battery localization rules mandate that imported battery components cannot exceed 10 percent of an electric vehicle's factory price for local incentive qualification, effective January 1, 2026.

Pornchai Thiraveja, Director-General of Thailand's Excise Department, stated that the policy is designed to support industrial adaptation. "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," Thiraveja said. He added, "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."

The Ministry of Transport has proposed an 80 percent annual vehicle tax reduction for new factory-built electric vehicles, alongside an expanded trade-in scheme for taxi fleets. According to government documents, this trade-in program carries an initial quota of up to 20,000 vehicles starting in 2026, though final cabinet approval and Finance Ministry review remain pending. Domestic car sales increased by 7.29 percent year-on-year to 59,865 units in March 2026, per industry statistics, with hybrid output rising by 12.69 percent and internal combustion engine passenger car production declining by 22.08 percent over the same period.

Industry representatives, including members of the Federation of Thai Industries, have urged the government to provide clearer long-term fiscal direction and to overhaul imported electric vehicle excise taxes to ensure market fairness. Some public commentary has characterized the higher vehicle tax adjustments as a measure to offset broader tax collection gaps.

Major automotive producers operating in Thailand, including Toyota, Honda, Nissan, Mitsubishi, and Suzuki, must adjust their manufacturing strategies to meet the new emissions benchmarks and local content requirements to secure government benefits. Consumers purchasing internal combustion and hybrid models face higher prices due to the emissions-based taxation, while electric vehicle buyers benefit from reduced excise levies and prospective trade-in opportunities.