The Stock Exchange of Thailand has warned that the Ministry of Finance’s plan to reintroduce a 0.1% tax on share sales may significantly affect the bourse’s liquidity and slow economic recovery.
The bourse said the 0.1% levy was set in 1991 and was proportionate to the average brokerage fee of around 0.5% at that time.
However, as the brokerage industry has become more competitive, the average commission rate significantly dropped and currently stands at only 0.08%.
If the government imposes a 0.1% sales tax on top of 0.01% local tax, the ratio between the commission fee and the tax will be 0.7:1 times, which will more thandouble the trading cost, discourage investment and consequently cause market liquidity to decline over time.
When liquidity contracts, the business sector’s cost of capital will also rise, making it more costly for firms to raise funds from the capital market, the bourse explained.
As the Thai economy has not yet fully recovered to pre-Covid levels, these listed companies may consider slowing or reducing investments to offset increased costs which may result in lower employment and GDP growth, the SET said.
Service providers of products such as exchange-traded funds, derivative warrants and single stock futures such as asset management companies may also have to face double tax costs as these investment instruments involve trading of stocks on the stock exchange.
The taxation will limit the development of innovations that could benefit investors and enhance the Thai capital market’s competitiveness, so the Ministry of Finance should provide an exemption for market makers, mutual funds, pension funds and welfare funds, to promote savings and development of innovative investment instruments, the bourse said.
The ministry should also notify the public and businesses of the tax collection plan in advance to give them time to prepare and adjust their investments to mitigate risks from rising costs and volatility triggered by inflation, rate hikes and the prolonged pandemic and geopolitical war.