The Federation of Thai Capital Market Organizations (Fetco) has urged the Finance Ministry to abandon a proposal to collect a transaction tax from share trades, claiming the stock market still needs tax incentives to support long-term investment.
Fetco on Thursday submitted an open letter to the ministry to oppose its plan to impose a 0.1% tax on securities trades.
The federation's chairman Paiboon Nalintrangkurn said the tax will severely affect the market's liquidity by discouraging people from investing.
He said overseas studies have shown that such a tax collection will mean people need to spend 2-3 more years to save enough money for retirement.
Moreover, the increased tax burden will raise costs for market makers, typically large brokers that boost market liquidity by issuing or developing new products, especially derivative warrants and single stock futures, which are based on underlying stocks on the Stock Exchange of Thailand.
Mr Paiboon said market makers in developed markets such as Hong Kong, the UK, France, Italy and Spain, as well as mutual funds, pension funds and welfare funds in Italy, Switzerland, Belgium and Iceland, prefer taxation exemptions because they reduce impacts on savings and encourage wider public investment and innovative development in markets.
He said the Thai tax rate of 0.1% was introduced in 1991 when the stock trading commission rate was 0.5%. With more competition among domestic and external markets, the current commission rate has dropped to only 0.08% of turnover. With a tax of 0.1% combined with local taxes of 0.01%, investors would be taxed 0.11% on their trades, which is 0.7 times the value of the current trading fee.
Mr Paiboon said the tax will significantly affect investment decisions, especially in the face of high volatility in global capital markets attributed to the pandemic, the Russia-Ukraine war and interest rate hikes.
He said the cost of raising capital will rise when market liquidity decreases, causing listed companies to slow or reduce their investments in business expansion, resulting in lower profits and ultimately reduced productivity and GDP.
Corporate tax will also decrease accordingly because these companies will have less money to pay. The downside will be especially severe for smaller companies with very limited funding options today, Mr Paiboon said.
