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New stock-trading tax a big gamble for COVID-depleted Thailand

The Finance Ministry is under pressure to boost tax revenue as Thailand has run fiscal deficits for several years, resulting in high public debt.

The COVID-19 crisis has worsened the situation, with public debt now approaching the “safety limit” set at 60 percent of GDP. The pandemic has forced the government to hike borrowing significantly compared to pre-COVID days, when the country was already facing slower growth and rising welfare costs.

The widening gap between state revenue and spending also suggests that previous tax reforms were not adequate to meet the country’s needs.

First steps towards reform

In recent years, the government has introduced an inheritance tax and a land & building tax, with the aim of collecting more revenue from the wealthy. However, income from the new taxes fell far short of expectations because the rates imposed were too low.

Now comes the latest plan to boost revenue.

According to Reuters, the government is set to impose a tax of 0.11 percent tax on individual share traders whose stock transactions account for more than Bt1 million a month.

Sommai Siriudomset, the spokesperson for the Revenue Department, said the pros and cons of the stock-trading tax are still being studied and no date has been set for its implementation.

The Thai Revenue Code stipulates stock transactions are subject to a 0.1-per-cent specific business tax, though this has been waived since 1991. This tax is also different from capital gains tax covering profits from stock trading, from which retail investors have also been exempted. Businesses, however, are required to pay corporate income tax on profits from stock trading.

If the new stock trading tax is implemented, it is unlikely to affect small retail investors since its target is wealthy traders with monthly share sales of at least Bt1 million.

Huge resistance

The financial sector, however, is strongly opposed to the new tax, saying it risks damaging Thailand’s stock market.

Paiboon Nalinthrangkurn, chair of the Federation of Thai Capital Market Organisations, said a stock-trading tax would increase the burden on individual investors who already pay a hefty transaction fee plus 7 percent VAT. A trading tax would also make the Thai equity market less attractive, he added.

If the government insists on taxing stock traders, it should wait until the economy has recovered from COVID-19 and is growing again, said Paiboon.

Adis Israngkura, the advisor to the Thailand Development Research Institute, argues the government will not earn much from the trading tax as it will be easy to avoid. Investors will either keep their trading below the 1-million-baht threshold or open separate trade accounts in the names of family members, he said.

The tax also contradicts benefits the Revenue Department is offering for investments in retirement mutual funds and the Super Savings Fund, he added.

If the government wants to collect tax from stock market traders, it should implement a capital gains tax – or tax on profits from the sale of shares, he suggested.

Uneven rates

Although the department has waived capital gains tax for small investors, it is still charging 10 percent withholding tax on stock dividends and 15 percent withholding tax on bond coupon rates.

Critics say this disparity in tax rates for equity and debt markets is unfair to investors.

Also, when corporate or government bonds are traded in a secondary market, investment returns are based on bond yields, not the coupon rate.

Bond yield is investment returns based on the bond’s price as well as its coupon, so the yield moves up and down, unlike the fixed coupon rate.

“So, it would be fair if tax is collected on the bond yield rather than the coupon rate,” said Tada Phutthitada, president of the Thai Bond Market Association.

Sommai insists that the Revenue Department is also studying other tax-collection options as part of reform moves to make taxation more equitable for all parties.

Source: Thai Public Broadcasting Service (Thai PBS)

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