A move to end the tax deductions for long-term equity funds (LTFs) could severely affect Thailand's stock market as the global stock market bull run is poised to dissipate in 2020, says a mutual fund specialist.
The outlook is backed by a lower amount of monetary stimulus measures implemented by global central banks and the rising interest rate outlook, said Voravan Tarapoom, chairwoman of the executive board at BBL Asset Management and honorary chairwoman of the Association of Investment Management Companies.
Ending the tax deduction for LTFs will hurt Thailand's stock market because a sum of around 100 billion baht of Thai mutual funds is slated to be redeemed in 2020, with the same amount set to be redeemed in the following year, Mrs Voravan said.
Investment flows from LTFs can help mitigate possible capital outflows from the Thai bourse once the bull run comes to the end, she said.
The cabinet in late 2015 approved an extension of tax incentives for LTFs for three more years from 2016 to revive waning stock market sentiment and boost domestic savings.
Taxpayers are permitted to deduct contributions to LTFs and retirement mutual funds worth up to 500,000 baht each or no more than 15% of annual taxable income, whichever is lower.
To obtain the tax deduction, individuals must hold LTF units for at least seven calendar years and not be incapacitated or dead.
The Finance Ministry should consider lowering the tax deduction for LTF investment rather than terminating such deductions, whereby the maximum deduction amount of 500,000 baht per year could be reduced by 100,000 baht per year until the tax deduction's annual cycle ends, Mrs Voravan said.
An LTF is a mutual fund investment mostly invested in by middle-income earners, with 1.19 million total accounts and 390 billion baht worth of assets under management, she said.
Regarding the idea to establish an investment fund for low- and middle-income earners, the fund will not substantially help Thailand's capital market development, Mrs Voravan said.