The Federation of Thai Capital Market Organizations (Fetco) has called for the Finance Ministry to review a proposal to cap the combined tax-deductible contributions for retirement mutual funds (RMFs), the new tax-saving funds to be a substitute for long-term equity funds (LTFs) and provident funds at 500,000 baht per tax year.
If the ministry limits tax-deductible contributions to all three funds at 500,000 baht, individual taxpayers will lose as much as 500,000 baht in tax benefits, said Fetco chairman Paiboon Nalinthrangkurn.
Moreover, any new tax-saving fund will become more attractive than RMFs and provident funds, he said.
"The ministry wants to combine all types of long-term savings investments for a tax-deductible limit of 500,000 baht," Mr Paiboon said. "This would make up to 500,000 baht in current tax deductions disappear, so we don't agree with the ministry. These investments are for long-term savings. Thailand will become an aged society in the near future, so we should encourage long-term investment."
A source at the ministry who requested anonymity said recently that the new tax-saving fund's ceiling contribution would allow a personal income tax deduction of up to 30% of annual income, not exceeding 500,000 baht. The tax-deductible amount, however, must be included in a pool with RMF and provident fund contributions.
Individual taxpayers are now allowed to deduct up to 15% of total annual income, or a maximum of 500,000 baht a year, whichever is lower, for contribution to LTFs.
They are also permitted to separately deduct contributions to RMFs worth up to 500,000 baht, but no more than 15% of annual taxable income. But the 500,000-baht RMF contribution cap must include contributions to provident funds and pension insurance.
The ministry is talking with Fetco to determine a new type of tax-saving fund to replace LTFs, for which the tax benefit will lapse at year-end.
The next meeting is scheduled for this week.
The source said the lock-up period for the new type of tax-saving fund would be set at 15 years, more than doubling that of LTFs at seven years.
Fetco earlier proposed doubling the tax-deductible contribution for a new tax-saving fund, calling it the Sustainable Equity Fund, to 30% of assessable income, up to 250,000 baht.
Outstanding LTFs amount to 400 billion baht, with an incremental investment of 40-50 billion baht a year.
Mr Paiboon said Thailand has a population of 77 million but only 6 million investment accounts are exposed to the stock market.