The cabinet has approved a financial transaction tax on individual stock investors, ending a four-decade waiver.
According to Finance Minister Arkhom Termpittayapaisith, Tuesday's decision aims to create fairness in the tax system between securities traders in the stock market and people who do not interact with the Thai bourse.
The financial transaction tax on share sales by individual investors trading on the Stock Exchange of Thailand has been on the books for around 40 years, but the government has consistently waived it to support market development.
The collection comes under the Revenue Department's regulations, which require the payment of a 0.1% specific business tax on securities trades and a related local tax of 10% of the specific business tax, bringing the total financial transaction tax to 0.11% per share sold.
According to Mr Arkhom, the cabinet has in principle approved the revocation of the decades-long tax waiver.
He said the exact rate for the levy must wait for the Council of State's vetting. If the Council of State agrees, the regulation would be sent back for the cabinet's approval, then published in the Royal Gazette.
The tax comes into force three months after publication.
Securities trades by market makers, such as provident funds, the Government Pension Fund or the Social Security Fund, will be exempted from the tax as they are large-scale funds that play a key role in shoring up the stock market's liquidity, said Mr Arkhom.
"The financial transaction tax will charge securities trades from the first baht of proceeds available from stock sales," he said.
"It is expected this tax, if levied at 0.11%, would generate 15-16 billion baht in revenue per year for the state's coffers."
A Finance Ministry source who requested anonymity said in 2023, which will be the first year for collection of the tax, the charge will be levied at 0.055% (including local tax), and then increase to 0.11% in subsequent years.
Adisak Phupiphathirungul, first vice-president of Thanachart Securities, said the cabinet's decision would be unfavourable for brokers and the stock market because it would push up transaction costs.
For some institutional investors, the impact might not be dramatic because they do not focus on volume trade, but individual investors would bear the most impact, particularly for small-cap stocks, said Mr Adisak.
"It is likely that trade volume drops in this group and small-cap stocks lose their appeal to investors because transaction costs will be higher," he told the Bangkok Post.
For the stock market overall, liquidity would be decreased, partly because buying and selling stocks would be harder and investors might shift their focus to other markets as investing in overseas markets is not difficult these days, said Mr Adisak.
"The government estimated at least 10 billion baht in revenue will be gained from collecting this tax, but I'm afraid the damage from losing trade in the stock exchange will be higher than that," he said.
On the positive side, collecting taxes on the sale of shares would encourage investors to hold shares for longer to avoid paying taxes.
If the government thinks the tax collection would benefit the overall economy, such a policy might be "worth it," said Mr Adisak.