How a proposed tax on share trading will affect investors
The Finance Ministry is considering levying a financial transaction tax (FTT) on stock trading next year, but a decision will depend on economic conditions, Finance Minister Arkhom Termpittayapaisith revealed recently.
What is FTT?
The ministry is considering an FTT tax rate at 0.1 percent of transaction value on the seller, regardless of whether the transaction makes a profit or loss. Those who trade shares worth less than Bt1 million a month would be exempted, Arkhom said.
The Revenue Department has been assigned to study the pros and cons of the FTT, taking into account the government’s need for more revenue and its impact on investors.
Countries around the world are faced with rising public debt as they have had to borrow more to finance relief packages for alleviating the impact of the pandemic.
Governments have been forced to seek new sources of revenue in order to ensure fiscal sustainability. Thailand is in the same boat, as the country’s financial position even before the COVID-19-induced public health crisis was under high pressure due partly to rising welfare costs because of an aging society. Economic slowdown for successive years has only made things worse.
Due to the rising deficit of the annual budget, the government this year raised the public debt ceiling to 70 percent of gross domestic product (GDP) from 60 percent.
As of October, Thailand’s public debt stood at Bt9.5 trillion, equivalent to 58.76 percent of GDP, according to the Public Debt Management Office.
Some analysts estimate that the government may gain an additional Bt10 billion to Bt20 billion in revenue by levying the FTT.
Athiphat Muthitacharoen, an associate professor at Chulalongkorn University’s Faculty of Economics, said the pandemic had severely increased the government’s debt burden and it needed revenue to offset it.
“The impact of FTT will be confined to investors in the stock market, so the cost on laypeople will be less than if the government were to hike the value-added tax rate, which will have high cost for general consumers,” said Athiphat.
Tax justice argument
Arkhom also cited tax justice and an effort to narrow the income and wealth inequality as reasons behind the proposal. The FTT, also known as specific business tax, has been held in abeyance for 30 years. He said now was the right time to impose it, arguing that many countries already collected FTT or capital gains taxes.
The debate on tax justice has many dimensions.
Athiphat argued that the FTT may advance the cause of tax justice to some extent, but it would be better to levy capital gains tax on gains from selling stocks.
He said the current tax system puts wage earners at a disadvantage. Wage-earners have to pay personal income tax rates at between 5 to 35 percent in line with seven income brackets. But those who make gains from selling stocks are exempted from personal income tax on the profit.
Regarding tax justice, he said that when the government introduces new taxes, it should also take into account related taxes, such as withholding tax at 15 percent on bond coupons and interest received from bank deposits, and 10 percent on dividends.
Impact on investors, bourse
Those who oppose the FTT are worried about the local bourse becoming less attractive to investors due to an increase in costs.
Currently, the transaction cost is the brokerage fee, whose rates vary for different accounts, the size of investment and rate charged by each brokerage firm. This fee represents about 90 percent of transaction cost, said Athiphat.
If the government decides to impose FTT at 0.1 percent on sellers, it will increase the cost for sellers by up to 0.27 percent, higher than Singapore’s 0.2 percent and close to Malaysia’s 0.29 percent. In Thailand’s case, if the FTT is imposed as proposed, buyers will not be affected. In comparison, Malaysia and Hong Kong impose FTT on both sellers and buyers of stocks, Athiphat explained.
If stock transactions worth less than Bt1 million or Bt2 million a month are exempted from the FTT, about 80 percent of retail investors in the Thai stock market will be spared the tax.
The majority of retail investors, however, may shoulder the tax burden via their investments in mutual funds. So far, it is not clear whether mutual funds will be exempted from the FTT, Athiphat said.
By Thai PBS World’s Business Desk