New fund replacing LTFs starts to take shape

New fund replacing LTFs starts to take shape

Tax incentive due to expire at end of year

The Finance Ministry has agreed to launch a new tax-saving fund to replace long-term equity funds (LTFs), for which the tax incentive is due to expire at the end of this year.

The initial details of the new fund bear resemblance to the Sustainable Equity Fund (SEF) suggested by the Federation of Thai Capital Market Organizations (Fetco).

A tax-saving fund is still essential to help prop up the Thai stock market, which is reeling from global and local uncertainties, but such a fund must help deal with the income disparity gap, said a source familiar with the matter who requested anonymity.

Contributions to LTFs are allowed at up to 15% of total annual income or a maximum of 500,000 baht a year, whichever is lower, and they are deductible from personal income tax.

The source said the conditions of the new tax-saving fund would be tweaked from LTFs, increasing the ceiling tax deduction to 30% of annual income, but lowering the maximum amount to 250,000 baht.

"Our study found that a maximum investment of 250,000 baht per year in a tax-saving fund is appropriate, as 80-90% of those who contribute to LTFs invest less than 250,000 baht," the source said.

Lowering the cap for investment in a tax-saving fund means high-income earners will see less of a tax deduction, while lower-income earners can benefit because the percentage of annual income is doubled to 30%, the source said.

About 30,000 individual taxpayers are subject to the top tax bracket of 35%, and they pay a combined 70 billion baht in personal income tax, the source said. This group often invests the ceiling of 500,000 baht in LTFs.

The lock-in period would remain the same as LTFs: seven calendar years.

The new tax-saving fund would be required to allocate up to 50% of net asset value to sustainable stocks, infrastructure funds and small and medium-sized enterprises (SMEs) listed on the Stock Exchange of Thailand.

"We understand that the supply of SME stocks is low, so we would require the new tax-saving fund to invest up to 50% in infrastructure funds, SMEs or sustainable stocks," the source said.

Fetco has proposed replacing the LTF with an SEF whose ceiling tax deduction is reduced to 30% of annual income, for up to 250,000 baht. The SEF must allocate 65% of net asset value to stocks that meet environmental, social or governance goals, or to state infrastructure funds such as the Thailand Future Fund.

Meanwhile, State Enterprise Policy Office director-general Prapas Kong-Ied said Sepo has already sold the Finance Ministry's stake in three of the 10 non-listed firms that attracted bidders.

The share sales were able to fetch 2 million baht for the Finance Ministry.

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