Fetco asks for split deductions
The Federation of Thai Capital Market Organizations (Fetco) has requested the Finance Ministry separate tax-deductible contributions for the new tax-saving fund to replace long-term equity funds (LTFs) from those for retirement mutual funds (RMFs).
Fetco chairman Paiboon Nalinthrangkurn said he disagreed with the ministry's plan to set the maximum for combined tax-deductible contributions for the new tax-saving fund and RMFs at 500,000 baht per taxpayer per year.
The RMF is designed as a retirement savings fund because it requires individual taxpayers to lock up their contributions until they retire, starting from 55.
The new tax-saving fund or LTFs are for long-term investment, so the lock-up period is typically shorter than for retirement funds, which complements younger people's investment behaviour, he said.
If tax-deductible contributions to a new tax-saving fund are bundled with those from RMFs, flows from LTF investment of about 50 billion baht a year to the Thai stock market could be reduced by more than a half. This will adversely affect the bourse, said Mr Paiboon.
The ministry recently said the new tax-saving fund's ceiling contribution is allowed a personal income tax deduction of up to 30% of annual income up to 500,000 baht, ensuring high-income earners don't benefit the most from tax deduction.
The tax-deductible amount, however, is combined with RMF contributions.
The lock-up period for contributions to the new tax-saving fund will be 15 years, said a source at the ministry who requested anonymity.
Individual taxpayers are allowed to deduct up to 15% of total annual income, or a maximum of 500,000 baht a year, whichever is lower, for contributions 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 tax incentives for LTFs are due to lapse at the end of this year. Outstanding LTFs in the market amount to 400 billion baht.
Mr Paiboon said if the ministry thinks Fetco's proposal to cap tax-deductible contributions for the new tax-saving fund alone at 250,000 baht per year is too high, 200,000 baht is acceptable.
He said the ministry's proposed 15-year lock-up period for the new tax-saving fund is too long and 10 years is adequate.
For LTFs to be entitled to a tax deduction, individual taxpayers must lock up their contributions for seven years.
Mr Paiboon said the Thai stock market is among the world's five worst-performing bourses in terms of return, yielding a mere 2-3% this year.
The Dow Jones index has returned 30% and mainland China 20%.
Even Hong Kong's stock market has fared better than the Thai stock market and that city has been in turmoil for much of the year, he said.