Long arm of the law affects all
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Long arm of the law affects all

With the economy on a recovery path, 2022 offered a roadmap for various industries to grow and cash in on near-term opportunities. For some sectors, a lack of supervision stymied potential development. As new rules are imposed and others expire, businesses and individuals need to adapt because the government is desperate for higher tax revenue.

Year of tighter regulations

Throughout 2022 digital asset businesses were under scrutiny from the Securities and Exchange Commission (SEC), imposing several new regulations to mirror the international market, with the objective of improving investor protection.

The collapse of FTX, one of the world's largest crypto exchanges, revealed a lack of effective management and regulations in the industry. (Photo: Reuters)

For example, the regulator announced on Oct 31 digital businesses must seek the approval of the SEC if they plan to have a major shareholder.

An application must be submitted to the SEC within 14 days from the date the operator knows the identity of the major shareholder.

If the major shareholder comes from an event to raise capital, the application for approval must be submitted prior to the date of the capital increase that results in such person becoming a major shareholder.

Earlier, the SEC added digital asset custodian as a business under its supervision. This was in response to the Finance Ministry's announcement in mid-July, describing a digital asset custodian as keeping digital assets in custody, as well as management services of encryption of cryptographic keys, or related services that are required to be confidential for approval of any transfers or transactions related to digital assets, with full or partial authorisation.

"The use of a client's assets, fiat money and digital assets for the benefit of another client or any other persons shall be prohibited, and clients' assets shall be reconciled every business day to ensure accurate and updated records of clients' assets," said the SEC.

The SEC also tightened the rules governing digital asset ads, banning faulty, distorted or exaggerated information, or anything that could lead to misunderstanding among the public.

Digital asset operators that want to advertise must inform the regulator about the budget and other details of their ads, including bloggers and influencers.

The ads must indicate investment risks and have complete information, with balanced views of risks and opportunities so that investors can make informed decisions.

The digital asset market had several meltdowns in 2022 that dented confidence in the industry. These included the collapse of the Luna cryptocurrency network, the TerraUSD (UST) stablecoin of the Terra blockchain, and Three Arrows Capital, a Singapore-based cryptocurrency hedge fund.

Recently the collapse of FTX, one of the world's largest crypto exchanges, revealed a lack of effective management and regulations in the industry. A number of investors face heavy losses from these incidents.

The Bank of Thailand is expected to wield greater powers under a new regime of digital asset regulation.

So far, the SEC is the main body responsible for keeping an eye on the industry, but recent criticisms over the lack of decisive action in the wake of industry implosions may see the central bank taking centre stage.

The Bank of Thailand is developing a retail central bank digital currency in the hopes it can steer the public away from virtual currencies.

The SEC, meanwhile, is in the process of improving digital asset governance.

The regulator set up a working committee consisting of relevant government agencies and private sector representatives to study and suggest ways to improve laws to adapt to the changing environment and growing risks of digital assets.

Moreover, the SEC is monitoring new potential risks and vowed to improve regulations to be more effective in supervising the industry, specifically protecting investors' assets, governing advertisements and product promotions, preventing conflicts of interest, and strengthening cybersecurity.

End of share sales tax waiver

The end of the waiver for the financial transaction tax on stock sales is scheduled to take effect in 2023, increasing the country's revenue as part of a tax system overhaul.

The tax is estimated to result in higher costs for stock investors of 0.22%, according to the Revenue Department.

The end of the waiver should not affect stock trading, instead ensuring fairness in the tax system, according to Finance Minister Arkhom Termpittayapaisith.

The cabinet on Nov 29 approved a financial transaction tax on securities trades on the Stock Exchange of Thailand (SET), ending a three-decade waiver.

Once in effect, there would be a 90-day grace period for adjustments. The tax is charged on securities trades from the first baht of proceeds available from stock sales.

This tax has been on the books for more than 30 years, but the government has consistently waived it to support market development.

Collection falls under Revenue Department 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.

In the first year, the department is requiring the payment of a 0.05% 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 0.055% per share sold, according to Mr Arkhom.

From Jan 1, 2024, the department will require the full payment of a 0.1% specific business tax on securities trades and a local tax of 10% of the specific business tax, for a total of 0.11% per share sold, he said.

A levy of 0.11% should generate 15-16 billion baht in revenue per year for the state's coffers, Mr Arkhom said.

He said the government needs to seek more revenue for the future. The government set a target to increase its revenue per GDP ratio to 16% in five years from the current 14.9%. One means to achieve this goal is by expanding the tax revenue base.

Revenue Department director-general Lavaron Sangsnit said the tax would result in higher overall costs to stock investors of 0.22%, still lower than levies in some other regional stock markets. For the first year of enforcement, the rate is 0.055%, which will raise investors' transaction costs to a total of 0.195%, he said.

Tougher PDPA enforcement

The Personal Data Protection Act (PDPA) came into effect on June 1, 2022, amid expectations the country will improve its standards for personal data protection, in line with the international community.

The Personal Data Protection Act came into effect on June 1.

The Personal Data Protection Committee (PDPC) insisted it would not resort to punishment for the first year of implementation, giving the public and businesses time to prepare and understand the law.

The legislation mandates that data controllers and processors who use personal data must receive consent from data owners and use it only for expressed purposes.

Siwaruk Siwamogsatham, secretary-general of the PDPC, said after one year of enforcement, the focus will shift to finding a balance between people's data protection and organisations' related practices.

Organisations are encouraged to follow the law to earn trust from users and create unique value for businesses, he said.

The regulation on rules and principles for personal data breach notification, under the PDPA, were published in the Royal Gazette on Dec 15, mandating organisations that are aware of data breaches must notify the authorities within 72 hours.

Regarding concerns over punishment, Mr Siwaruk said the severity of the punishment depends on intent.

If organisations intend to sell people's personal data or lack proper security measures to protect very sensitive personal data, such as health records, the punishment could be prison sentences, he said.

Regarding fines, the PDPC will not resort to maximum fines, but will consider incidents case-by-case, taking into account the degree of damage and how many times the offences occurred, said Mr Siwaruk.

Organisations need to have data protection officers (DPO) as a contact point to report incidents and oversee the data protection process, he said. They can assign IT managers or outsourced firms to run the services.

In 2023, Mr Siwaruk said the PDPC will devise a regulation that mandates organisations handling sensitive data have DPOs, such as those in health and insurance businesses. He said organisations must have a clear data protection policy and data storage process, as well as proper measures to control the access of personal data to fend off hackers and prevent human errors that can cause breaches.

Mr Siwaruk said the PDPA focuses on measures to prevent personal data breaches rather than punishment.

In the first quarter of 2023, the PDPC will prepare complaint channels, including digital methods, with complaint forms to fill in, he said.

Slow property market

Developers expect the residential market in 2023 to slog down with the expiration of the eased loan-to-value (LTV) limits on Dec 31, 2022, as homebuyers will need a higher amount of savings to buy a unit when using a mortgage.

Homebuyers view deals at an expo at Central Plaza Ladprao Bangkok. The LTV measures aim to raise the standard of home loan lending to an appropriate level.

Under the normal LTV regulations, prospective homebuyers using a mortgage are required to make a down payment of 10-20% of the home value for units priced 10 million baht and higher.

If this is their first mortgage and the unit is valued at less than 10 million baht, the loan can be approved for up to 100% of the home value.

If the unit's value is higher than 10 million baht, the mortgage limit is 90% of the home value.

However, if it is the applicant's second mortgage, the mortgage limit is 80-90% of the home value, while it is 70% for the third mortgage.

According to the Bank of Thailand, the LTV measures aim to keep home loans at an appropriate level and prevent homebuyers from racking up too much debt, as well as to prevent speculation in the property market.

Many developers believe the resumption of normal lending rules in 2023 will cause the residential market to decline by 10-20% from 2022 as homebuyers may take time to accumulate savings before buying a house.

Pressure from land levy

The government's plan to reintroduce the full levy for the land and building tax in the 2022 tax year has hoteliers concerned, following a 90% reduction of the tax granted to property owners during the pandemic years.

An aerial view of Bangkok from King Power Mahanakhon, one of Thailand's tallest buildings. The Land and building tax has left concerns among hoteliers. (Photo: Patipat Janthong)

Though the government agreed to offer a 15% discount in 2023, this tax cut was weaker than what the private sector expected.

The Thai Hotels Association (THA) called for an extension of the tax cut for another two years, or an incremental increase by 5-10% per year, in order to let hotels maintain a healthy balance sheet as the industry suffered a severe loss in income for more than two years.

A study by the THA and the University of the Thai Chamber of Commerce found 93.6% of respondents said taxes, which account for almost 16% of their costs, will continue to have a negative impact as they cannot earn enough to cover increasing expenses.

Moreover, many hotels have started repaying loans at normal interest rates after a rate cut was granted the past two years to mitigate the economic impact.

Hoteliers have particular concerns about this issue as the tax is calculated based on new land appraisal values set by the Treasury Department, with an average increase in land prices of 8% set for next year.

Minor International Plc last month urged the government to allow businesses to pay the tax in three instalments without interest or penalty fees for late payment.

The Joint Standing Committee on Commerce, Industry and Banking also proposed a tax reduction for another two years at 75% and 50% in 2023 and 2024, respectively.

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