The Double-Edged Sword: Unintended Consequences of Small and Medium-Sized Enterprise Promotion Policy
Thailand’s introduction of a B30-million revenue cap in 2011 to qualify for SME tax incentives has had significant unintended consequences, according to a study by the Asian Development Bank (EWP 778). Using data from all registered Thai firms, it shows that the policy led to pronounced bunching behavior just below the threshold, with firms adjusting operations to maintain SME status. While this provided short-term tax relief, it simultaneously constrained revenue growth, investment, and profitability—especially for firms with lower pre-policy performance—without significantly affecting survival rates. The policy also discouraged the emergence of larger firms, altering the size distribution in Thailand’s economy. These findings underscore the dual nature of size-based SME policies: while offering relief, they can inadvertently hinder long-term firm growth and contribute to resource misallocation, highlighting the need for more careful policy design.