The time of year is approaching when money-savvy investors search for tax-deductible options that offer reasonable returns.
There are three investment choices that feature deductions from personal income tax: insurance, long-term funds, and savings in the form of contributions to provident and social security funds.
Here is a brief rundown of the options and tax deductions.
PLENTY OF OPTIONS
Social Security Fund: For this type of savings, the tax deduction is the amount paid, up to 9,000 baht per year.
Life insurance premiums: The deduction is based on actual expenses, up to 100,000 baht. The insurance policy must have a maturity of 10 years or more, with benefits paid on a regular basis. The insurer must be a life insurance company in Thailand. In addition, if the policy is surrendered before the end of the 10th year, the investment cannot be deducted.
Health insurance and accident insurance premiums that cover health: Deductions are based on actual expenses, up to 25,000 baht. When combined with life insurance and savings insurance premiums, the amount must not exceed 100,000 baht.
Parents' health insurance premiums: Deductions are based on actual expenses, up to 15,000 baht. The parents must have an annual income of 30,000 baht or lower, and their ages cannot exceed 60.
Social enterprise business investment: For people investing in social enterprises from 2021, the amount can be deducted, up to 100,000 baht.
Retirement Mutual Fund (RMF): Deductions are based on the amount invested, with a limit of 30% of taxable income, or no more than 500,000 baht. Investors must continue to purchase RMFs at least once a year, with pauses not exceeding one consecutive year, until they reach age 55. They must also continuously invest for at least five years.
Super Savings Funds (SSF): This fund promotes long-term savings. Deductions are based on the amount invested, with a limit of 30% of taxable income, or no more than 200,000 baht. Investors must hold SSF units for 10 years from the date of purchase, but they are not required to continually invest every year.
Provident Fund (PVD) annuity and Private School Teacher Welfare Fund (PSTWF): Deductions are based on the amount invested, with a limit of 15% of taxable income, up to 500,000 baht.
Government Pension Fund (GPF): Deductions are based on the amount invested, with a limit of 30% of taxable income, up to 500,000 baht.
National Savings Fund (NSF): The fund was established to offer a social benefit for self-employed people who are not covered by a pension scheme or the Social Security Fund. Deductions are based on the amount invested, up to 30,000 baht.
For life insurance and retirement investments, including RMF, SSF, GPF, PVD, PSTWF, NSF, and pension life insurance, the combined tax deduction cannot exceed 500,000 baht.
Individuals have tax allowance up to 30,000 baht for the National Saving Fund.
Late last month, the government endorsed the Thailand ESG (TESG) Fund, a long-term investment fund proposed by the Finance Ministry that offers tax benefits for investors.
The Securities and Exchange Commission (SEC) is expected to approve TESG Funds by early December, allowing investors to deduct their investment in them for the 2023 tax year.
Deductions are based on the amount invested, with a limit of 30% of taxable income, up to 100,000 baht, for the tax year the investment is made. Investors must hold the TESG Fund a minimum of eight years.
In addition, the capital gains or returns obtained from the redemption of TESG investment units are tax exempt if the investment meets Revenue Department conditions.
According to the SEC, TESG Funds can invest in assets owned by issuers in the Thai public sector or businesses registered under Thai law.
The funds can invest in stocks listed on the Stock Exchange of Thailand (SET) and the Market for Alternative Investment that have been selected by the SET as outstanding in terms of green and environmental, social and governance criteria.
TESG Funds can also invest in stocks listed on both markets that disclose information on greenhouse gas emissions, management plans, and targets to achieve Thailand's goals for reducing emissions.
A third option for TESG Fund investment is in debt securities that meet the regulations for sustainability-linked bonds, as well as digital tokens for fundraising related to sustainability that comply with the same standards.
For social security, you can deduct from personal income taxes no more than 9,000 baht each tax year.
Phillip Securities recommends four themes for long-term investments for RMF, SSF and TESG funds.
Clean energy: Phillip recommends MFC Renewable Energy Fund (MRENEW), a clean energy-themed stock fund that invests in the main fund BGF (BlackRock) Sustainable Energy Fund.
BGF invests in clean energy businesses from upstream (such as solar power plants), to midstream (various industrial plants, energy efficiency and batteries) and downstream (electric vehicles). All of those businesses represent important trends that many countries are emphasising, said the brokerage. Investors can opt for SSF and RMF for investment, said Phillip.
Health business: The brokerage recommends K Global Healthcare Equity RMF (KGHRMF) and Bualuang Global Health Care Super Savings Fund (BCARESSF) as stock funds with this theme.
KGHRMF invests in JPMorgan Global Healthcare as a master fund, while BCARESSF invests in Wellington Global Healthcare. Both master funds invest in many healthcare sub-sectors, including pharmaceutical, medical equipment, medical services and new treatment innovation businesses.
This investment policy allows for good risk diversification and growth opportunities in healthcare, which is positioned to fare well amid the trend of ageing societies, noted the brokerage.
Technology: Phillip recommends KKP Expanded Tech Fund (KKP TECH), which invests in iShares Expanded Tech Sector ETF as the master fund.
The strength of iShares is its investment in world-class technology stock indices with high growth potential as technology influences consumption behaviour and development of the business sector, said the brokerage. As technology disrupts, it has created new global trends, noted Phillip.
Investing in technology-themed funds offers vast potential, but this sector is a high-risk group, said the brokerage. This theme is suitable for investors who can accept the high likelihood of losses in the short term, said Phillip.
Foreign debt funds: Phillip recommends United Global Income Strategic Bond Fund (UGIS Fund), which is a foreign bond fund that invests in Pimco GIS Income Fund, a master fund known for managing fixed income portfolios. This fund offers a variety of fixed income assets, providing diversification.
In an era of high interest rates and bond yields, investors should pay heed to foreign debt-themed funds, which have a high chance of recovery when interest rates start to drop, said the brokerage.
According to Morningstar Thailand, the top 10 RMFs in terms of returns for the year-to-date, as of Nov 28, are as follows:
1. Asset Plus Digital Blockchain RMF (ASP-DIGIBLOCRMF) 100%
2. Tisco Next Generation Internet RMF P (TNEXTGENRMF) 61.9%
3. Tisco Next Generation Internet RMF A (TNEXTGENRMF-A) 61.9%
4. Mega 10 Retirement Mutual Fund (MEGA 10 RMF) 51.3%
5. Krungsri Global Technology Equity RMF (KFGTECHRMF) 44.9%
6. Tisco Technology Equity RMF-P (TTECHRMF-P) 44.2%
7. Tisco Technology Equity RMF-A (TTECHRMF-A) 44.2%
8. KKP Expanded Tech RMF - Hedged (KKP TECH RMF-H) 44.0%
9. SCB US Equity NDQ RMF (Acc) (SCBRMNDQ-A) 39.0%
10. TMB Eastspring Global Innovation RMF (TMB-ES-GINNO-RMF) 35.8%